Archive for February, 2009

Reader Question: Spend or Save to Fix the Economy?

Thursday, February 26th, 2009

A comment was left asking a question that many of us have wondered about:

Answer me this: I hear economists on TV talking about people not buying as many things which is part of the problem in our recession.  Then I hear other people talking about people not saving enough.  Which is it?  Or a little bit of both?

Simply put, the lack of spending is a symptom while the lack of saving is one of the causes. Allow me to explain.

Imitation Wealth

I have a rich friend who is far more wealthy than I am. But thanks to my Visa Platinum, I can live the exact same lifestyle that he does—at least for a time. My imitation wealth will eventually run out and I will no longer be capable of living like my friend. In fact, I will be much worse off than in the beginning.

Now, think about all your neighbors and family members who have been living on imitation wealth for years. Think of the boats, cars, houses, vacations, and other luxury items that were bought using imitation wealth. Think about your state and federal government. They too have been operating on imitation wealth (think of how long you’ve been hearing about the national debt, budget deficits,  and borrowing from China).

Eventually, imitation wealth runs out. It just so happens that millions and millions of people all ran out of imitation wealth at one time. How? I blame it on the Federal Reserve.

Saving Helps the Economy as Much as Spending

Unless you hide your money under a mattress, your savings are in a bank or some other investment fund. This saved money is not horded outside the economy. On the contrary it is loaned out and put to use in the economy. Saving your money stimulates the economy just as much as spending.

Addicted to Spending

Spending money we don’t have got us into this mess. Just like a drug addict who tries to fix his problems with more drugs, spending more money that we don’t have will only alleviate the pain temporarily. A spending overdose is likely.

The Fix

All the sexy solutions you hear about on CNN have about as much substance as Paris Hilton. Spending borrowed money will not fix the economy. Unfortunately, those *solutions* also seem to have Paris’ appeal. The real solution is simple and boring: live within your means, encourage your friends to do the same, and vote for politicians who will too (I know, few exist).

So if we need more REAL wealth instead of more imitation wealth, how do we get it? Through job creation? ‘H’ no! More on that soon.

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Why I Left the Air Force ROTC

Monday, February 23rd, 2009

I left the Air Force ROTC because internal threats to America’s freedom are far greater than external threats. I can contribute more to America’s freedom by being a liberty maven/missionary than I ever could have as a fighter pilot.

Why I joined in the first place:

I joined BYU’s Air Force ROTC in 2005 with high hopes of fulfilling 3 dreams (in order of priority):

  1. Protect the liberties that make America great.
  2. Show my appreciation for the founding fathers and everyone else who helped make America great.
  3. Fly jets.

It wasn’t what I expected:

Within a year, I knew there were better ways to fulfill goals 1 and 2. The Air Force places high focus on leadership, camaraderie, and discipline; but liberty is rarely discussed and never defined. The general attitude I observed had more to do with “spreading democracy.” No one seemed particularly interested in justifying the war we had just embarked on—questioning it was certainly outside the social norm.

My big dilemma:

Despite all this, I couldn’t leave. I had a great shot at landing a pilot slot. The slots are not determined until your third year so I still had a long way to go, but in my second year I was doing very well in many of the categories by which pilot candidates are judged:

  • High test scores and grades.
  • No medical issues.
  • Perfect vision.
  • Perfect physical fitness test scores.

I had quite an internal battle knowing that the Air Force wasn’t the place for me to fulfill my main goals; but if I left, the window of opportunity to fly would slam shut. It wasn’t until my backseat flight in an F16 that I was able to walk away with some closure. I’ve never regretted it.

Going Forward:

I see the internal fight for America’s freedom being fought on 2 fronts:

  1. Education/general awarness.
  2. Legislative/political.

I love teaching but I hate politics. I am working to become an influential writer/speaker/teacher (I know, I have a long way to go). Hopefully this blog is helping me refine my skills, network with others like me, and maybe even convince those within my circle of influence to stand by principles of liberty.

Speaking of which, stay tuned for the 5 principles of liberty, Benton style.

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Red Bull’s Formula One Team Gets a Boost of 83 Horsepower From Regenerative Braking (KERS)

Thursday, February 19th, 2009

Red Bull’s Formula One team has a system that will enable them to use their brakes for slowing down and speeding up. It’s called Kinetic Energy Recovery System (KERS). Red Bull’s team claims that the energy recovered from braking will be used in 83 horsepower boosts that last up to 6.5 seconds.

I’ve ridden in a VW Golf that had a 50 hp nitrous oxide boost. It was enough to push me back in my seat. I imagine this 83 hp boost will be quite a weapon for the drivers who have it.

Here is a quick computer animation that describes the car and the technology (2min):

This is an awesome technology that is already being implemented in pretty much all hybrid, EV, and hydrogen applications (just not in 83 hp boosts).

source

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The difference between Obama’s Stimulus Plan and FDR’s New Deal

Tuesday, February 17th, 2009

Obama’s Stimulus plan is similar in many ways to FDR’s New Deal. Where do they differ? The gold standard. The current stimulus efforts are not subject to the same monetary printing restraints that FDR’s New Deal faced. Now our only protection against inflation and hyperinflation are the men in charge.

Similarities

Both plans operate on a similar philosophy: deficit spending. It’s the same philosophy that “Quick Cash” stores thrive on:

My rent and car payment are both due this week. I don’t get paid until next week. No problem. I will run down to the “Quick Cash” store, get a loan, and I’ll be out of this bind. I certainly couldn’t and wouldn’t do this on a regular basis, I just need some temporary help.

Apply the same philosophy on a national scale and you have a government stimulus plan:

We are in a bind. Consumers are not consuming, lenders are not lending. Jobs are being lost. Let’s run down to the “Quick Cash” store. We will get a trillion dollars to get consumers to spend, banks to loan, and employers to hire. We certainly couldn’t and wouldn’t do this on a regular basis, we just need some temporary help.

Where does the “Quick Cash” come from?

“Quick Cash” stores commonly loan money against your car title. Governments, on the other hand, have three sources of revenue: taxes, borrowing, and printing. They can choose to use any combination of the three to produce the needed “Quick Cash,” but there are dangers in over-tapping any one of the three sources. Fortunately, taxes and borrowing have built-in limiters. Printing, however, has no natural limiter.

I discussed the 3 sources of government revenue, their limiters, and the dangers of each here.

The Big Difference

Until 1971 we used a gold standard. Every dollar was attached to a certain value of gold. We could only print more dollars if we got more gold. FDR’s New Deal doubled the national debt by borrowing piles of money to fund all the government projects, but because of the gold standard the government couldn’t fund the projects by printing money.

Today, we no longer use the gold standard. The amount of money printed is only limited by the people in charge. How are we to ensure they won’t print us into nasty inflation or even hyper-inflation?

image source

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My Backseat Flight in an F-16

Thursday, February 12th, 2009

I broke the sound barrier and experienced a turn that brought on 7.5 Gs.

f16

Jeremy Clarkson of the BBC show Top Gear had a similar experience to mine except he was in an F-15. Here is a 10 min segment from his show that tells the story from the training to the flight (if you want to skip straight to the flying, scroll ahead to minute 6 of the video):

Here is a 1 min demo clip of an F-16 so you can see the difference in the two jets:

My ride came shortly before I left the Air Force ROTC in 2006. It was only possible after a trip to Colorado Springs where I was trained on altitude sickness and its symptoms. There I was put in an altitude chamber so that I could experience and react to the early signs of altitude sickness. Within seconds of losing cabin pressure, your body and reactions slow way down. You have to be able to put your mask on and engage your oxygen before you pass out. That is why you are always instructed on commercial airliners to put your mask on before helping those around you. After my training I received a “Chamber Card” that made me eligible for my ride.

I drove to Luke Air Force Base in Arizona. I was examined by a “flight surgeon” to make sure I was “fit to fly.” I received briefing after briefing to teach me how to avoid screwing something up, passing out, or barfing on the controls. They said I would have to scrub every inch of the jet if I puked on it. ;)

Finally, they suited me up in all the gear:

  • Helmet
  • Mask
  • Visor
  • G-Suit (When the jet goes into a turn, your G-suit fills with compressed air and squeezes your calves, thighs, and abs to help keep the blood from rushing out of your head—you also have to strain every muscle in your body to avoid passing out)
  • Knife to cut the parachute cords (without it I could get stuck in one of the three trees in southern Arizona’s desert).
  • Flight suit
  • etc.

I met the pilot and sat in on his mission briefing. I think I understood one word in the entire 30 min discussion: bogey. The pilot told me after the briefing that we would be flying a dog-fighting mission and that I would get to experience some great maneuvering.

Once in the jet I was blown away by the incredible visibility. You can see in almost every direction except backwards. The cockpit bubble extends beyond the sides of the jet so you can even look down.

At take off, the acceleration pins you pack in your seat similar to a fast car, but it holds you there for like 30 seconds straight.

Flying in formation with other jets was one of the best parts. It’s amazing to look out and see another jet flying above or beside you. The pilots commonly greet each other with a friendly birdy finger. When one of the other pilots flipped us off, I responded with a wave. He responded over the radio, “Ah crap! I flipped off the Mormon!”

Breaking the sound barrier was anti-climactic. I watched the gauge pass Mach 1, but otherwise didn’t feel or hear anything special. G force was a whole different story. Anything above 5 Gs feels like an elephant sitting on your head. I had to strain with every muscle in my body. I never passed out or vomited, but I did experience tunnel vision on a couple of turns (you can literally see your peripheral vision go black as the blood leaves your head). Had those turns been any sharper or held any longer I’m certain I would have passed out.

One hour in that jet was one of the most physically taxing things I’ve ever done. I went home and slept for 12 hours straight.

I think I started dreaming about this flight when I first saw the movie Top Gun. I experienced it once, then walked away from the Air Force and never looked back. More on that later.

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Are we paying for the Obama bailouts and stimulus packages via taxes, borrowing, or printing?

Monday, February 9th, 2009

Ever wondered where the billions and billions of bailout/stimulus dollars come from? This will help.

Any government has three and only three sources of revenue: taxes, borrowing, and printing. Any money that a government spends has to come from one of these three sources.

This chart from the Federal Reserve seems to indicate that a large portion of these packages is being funded by newly printed money.

Glen Beck explains the chart (4min):

Remember that the chart only reflects the initial $700B bailout package (and a few smaller ones). The $800B plus stimulus package will more than double the spike you see in the chart.

Alarming?

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Government’s 3 Sources of Revenue

Saturday, February 7th, 2009

I’m working on a post about our reaction to the stock market crash of 1929 and another about how we are paying for the current bailout and stimulus packages being passed. I’m preceding both posts with this quick discussion about government revenue.

Any government has three and only three sources of revenue: taxes, borrowing, and printing. Any money that a government spends has to come from one of these three sources.

Taxes

History clearly shows that a good, strong government is necessary. Without it, society falls into an anarchic mess. Taxes provide the needed resources for a government to function.

History also shows that government needs to have limits. Without them, society falls into a tyrannic mess. Taxes, by nature, have a built in limiter. If a government over taxes, it will destroy its people’s productivity and lose their confidence. The people will eventually demand lower taxes and the government will be forced to comply or collapse.

Borrowing

Governments commonly borrow from other governments. A government with an immediate need (usually war) can borrow money then pay it back later. Like any loan the money has to be paid back with interest.

Just like with taxes, the amount a government can borrow is limited. The limit comes from other governments’ willingness to lend. It’s just like my personal credit rating. If I over borrow or fail to pay back a loan, creditors will not be willing to lend me more money. The same holds true for a government.

Money borrowed by government can be described as a tax on future generations. We don’t have to pay right now, but eventually someone does.

Printing

Governments can print money. Just like over taxing and over borrowing, excess printing is very dangerous (discussed below). Unlike taxing and borrowing, however, printing does not have a built in limiter. In the past, America used a gold standard to limit printing. For every dollar printed there had to be one dollar worth of gold. In those days, you could go to the bank and trade your printed dollars for their equivalent amount of gold. This limited how much money the government could print. In 1971 America abandoned the gold standard and began to rely solely on the Federal Reserve trusting that they wouldn’t print too much.

The Dangers of Over-Printing Money

(skip this section if you are already familiar with the dangers of hyper-inflation)

As a government increases the amount of money, the value of that money decreases (inflation). I call this the buffet effect. Last time I drove through Las Vegas I stopped and ate at a fancy buffet. The food was so abundant that I would take one bite of each food then throw the rest away just so I could try more foods. If you contrast that to my attitude right after a fast, then you understand the effect of printing money.

History has shown that over-printing can cause an entire society to collapse (here, here, and here). Think about it, policemen, firemen, teachers, bakers, you, me, and everyone else wouldn’t go to work if the payment we receive is worthless or close to worthless. Organized society literally stops.

Inflation Tax

(skip this section if you are already familiar with it)

While at first sight it might appear that printing money is like creating wealth out of thin air. It’s not. Printing money is a tax on the people—a disguised tax. Imagine that the government prints $1billion and uses it to build a new road. That money is paid to contractors, architects, planners, etc. These people in turn spend that money on their own needs. As the newly created money is disseminated into the economy, prices of everything else go up a little bit (everyone’s money is less valuable). Now, I have to spend more on my needs than I did before. The extra money everyone has to spend is the tax that paid for the new road.

Why would a government fund projects through printing?

I’m sure the reasons are numerous, but here are the basics:

  1. What if a government wants to expand its spending but doesn’t dare raise taxes. It could print money and take advantage of the inflation tax.
  2. What if a government wants to expand its spending but other government’s are becoming less willing to loan money?
  3. What if a government has debts from past borrowing that are coming due? Pay the debts with printed money.

Comments? Questions?

Coming soon: Are we paying for the bailouts and stimulus packages via taxes, borrowing, or printing? Stay tuned.

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Michelin Reinvented the Wheel

Thursday, February 5th, 2009

Imagine a car where the motor, transmission, drivelines exhaust, suspension, and brakes are all inside the wheels. Okay, that’s impossible. But what if there were no need for a transmission, drivelines, and exhaust? Could you put the motor and the suspension inside the wheel? Michelin did:

The entire unit bolts to the car and needs nothing but a brake line and electric connector to enable all its components.

This invention has HUGE potential! It could be used on EVs, Hydrogen Fuel Cell vehicles, or even hybrids (at least a Chevy Volt type hybrid). It could be used in two or four-wheel-drive, and front or rear-wheel-drive configurations. Car designs could change drastically because the usual space set aside for drive train components could be used for other things.

Here is one prototype application (notice how the computer controlled suspension allows it to lean into turns):

The first production car to use the technology will be the 2010 Heuliez WILL.

I wonder if changing a tire will still be simple. If not, I suppose there is always AAA to do it for you. :)

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Who to Blame? How About The Federal Reserve?

Monday, February 2nd, 2009

As promised, I’m going to share my understanding of what caused our current financial mess. Don’t fret; I will keep this simple and hopefully interesting. And as I explained before, I do NOT believe this mess was caused by evil men on Wall Street and incompetent CEOs running corporate America.

To do this topic justice I have to mention a man named Milton Friedman. He was one of the most prominent economists of the 20th century. He, unlike most mainstream economists, blamed the Great Depression on The Federal Reserve (the guys who make our money). Milton’s explanation was something like this:

During the Roaring ‘20s, the Federal Reserve was busy pumping “easy money” into the nation’s banking system, distorting price signals, and sending a false message of prosperity to Wall Street tycoons, who responded by engaging in highly speculative lending practices.

source

Sound familiar? Now, don’t buy into this explanation just because it came from Friedman—decide for yourself if it makes sense. With that said, however, I have to share an interesting little tid-bit. Ben Bernanke, a scholar of The Great Depression and the current chair of the Federal Reserve, acknowledged and confirmed Friedman’s stance when he spoke at Friedman’s 90th birthday party:

“Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Milton's academic partner]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”

source

So, according to Mr. Friedman and Mr. Bernanke, the Fed caused the market crash of 1929. Did they do it again in 2008? I don’t know all the details of how the Federal Reserve operates, but I tend to believe they did. Let me share a few memories from recent history, you will probably remember too:

  • 9/11 caused a dip in the stock market that gave everyone a solid scare.
  • The Federal Reserve reacted by lowering the prime interest rate (they do this by adjusting the money supply like Friedman explained).
  • The lower interest rate and “easy money” encouraged Americans to buy more cars, houses, and just about everything else.
  • Home builders reacted by building loads of new homes. Auto manufacturers reacted by ramping up production and inventory.
  • The lower interest rates caused Wall Street investors to take on investments that were far too risky. The low interest rates made those investments seem smart.
  • In 2008, the illusion of prosperity came to an end.
  • Now we realize all that wealth was just borrowed money. Now the creditors are all calling for it and many of the debtors don’t have it.
  • Now we have an overstock of houses, cars, and most other consumer goods. People simply can’t afford them.
  • Now companies are being forced to lay off thousands of people as they try to bring production and inventory back to a reasonable level.

Note: These memories are not meant to explain the whole scenario leading up to or following the crash. They are simply some of the things I remember that seem to indicate this mess was really caused by the Federal Reserve.

So, put aside any Liberal vs Conservative biases and ask yourself if this explanation makes sense. For me, it’s the best explanation I have found. How about you?

Next week: How did we respond to the crash of 1929? Was it right? How does it resemble our current reaction?

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