A drawbridge you should fear...
A drawbridge you should fear... Why education is no longer the key to getting ahead in America... What's really killing the middle class... Get the investment education you need for free...
In today's Friday Digest, I (Porter) want to talk about the drawbridge that's destroying America. Yes, that's right. The drawbridge. Just give me a minute to show you what I'm talking about...
First, a few facts. The real (adjusted for inflation) median household income in the U.S. has declined over the last decade or so, from $57,000 to just under $52,000. That represents about a 9% decline in the standard of living for the average American household.
Nearly the entire decline in real incomes has occurred since 2008, which returns the average American household back to its standard of living in the mid-1990s – before the entire Internet revolution. For most people in America, income is in a serious decline. That has never happened before over a decade-long period in the United States.
What's worse is that prior to this decline, real incomes had been stagnant for a long time. Median household income hasn't materially increased since 1973, when real average household income was $48,557. And even this is misleading... In the early 1970s, there weren't as many families with two wage-earners as there are now.
For the last 40 years or so, families have made up for America's stagnant standard of living by sending the wife to work outside the home and then, later, by running up huge debts and speculating in real estate. These aren't solutions to the problem. And now, the problem is getting much, much worse.
The underlying economic cause of this problem is easy to see and easy to understand. Wages are no longer connected to gains in productivity. As you can see from the following chart, since 1948, productivity has grown 254%, but hourly wages have only grown 113%. The disconnect begins in 1971... the same year President Nixon untethered the U.S. dollar from gold.
Lest you think this economic history is in some way unduly influenced by my libertarian political orientation, this chart appeared in Paul Krugman's New York Times column on July 18, 2012. Krugman, as you may know, is among the most liberal economists published anywhere in the world today.
Now... about that drawbridge. The chart above – which shows the sudden and lasting disconnect between increases to productivity and wages – is the explanation for Americans' stagnant incomes over the last 40 years. Something has substantially changed in the way our economy works. Working harder or – working smarter – isn't benefiting employees anymore. And now, these stagnant incomes have begun to decline significantly.
On the other hand, Americans who own assets and businesses – whether they're small entrepreneurs like landlords, technology titans who created Internet businesses, or private-equity investors (like Warren Buffett) – have seen their wealth soar over the last 40 years.
This is the drawbridge I'm talking about – the bridge in America that exists between the very wealthy and the very poor. That bridge began to open 40 years ago... the chasm underneath it has grown deeper and deeper every year... and right now, as I'm writing these words to you... the gates are coming down and the bridge is beginning to move faster. You have to decide what side of the bridge you're going to be on. You have to move quickly... because getting across that bridge will soon be impossible.
Historically, the key to advancement in America was education. But the cost of a high-quality college education in America has risen 12 times over the past 30 years. Today, Harvard costs $50,000 a year in tuition. Very few people from the wrong side of the drawbridge can afford these costs. Likewise, the real costs of everything associated with the "normal" middle class in America are fast becoming out of reach. The costs of quality housing, health care, and education are now far beyond the reach of most Americans. The drawbridge is opening... wider and wider.
There are two core reasons this has happened in our country. Both are easy to understand. One was a critical mistake of the rich and the powerful. The other has been a critical mistake of those claiming to represent the poor.
First and foremost, the central reason that wages have become disconnected from productivity gains is because our currency – which was tied to gold, a resource of limited elasticity – was unlinked to any natural commodity. The result has been unlimited credit for our banking system and our government.
The bailouts of 2008 and 2009 were financed (like earlier bailouts in 1974, 1981, 1990, and 1998) by a massive expansion of the money supply. The way to understand this is simple. Today in America, the risks of capitalism and bankruptcy have been socialized.
Even though he owned several of the country's biggest banks, Warren Buffett didn't go broke in 2008. He didn't go broke because the Fed printed $4 trillion and bailed out the banking system.
Meanwhile, the rewards of capitalism are still reserved for those who own and control the assets of our economy. Who pays? Wage earners and savers, who depend on the value of the dollar. Who profits? Leveraged capitalists and the owners of great assets.
If the dollar was still tied to gold, the government and the Federal Reserve would not have the power to create unlimited amounts of new reserves. To garner capital to bail out a failing bank, the government would have to actually attract additional capital by offering a high interest rate.
Historically, that's exactly what happened during market corrections. These high rates would reward savers and wage earners, while punishing capitalists and leveraged owners of assets. The balance was maintained between those who earned and saved and those who borrowed and speculated. Today, there is no balance whatsoever. Earning and saving now means being on the wrong side of the drawbridge.
Author Ayn Rand famously said of the poor, "They have always been with us, don't be one of them." By that, she meant that there is no real solution to poverty, because most people end up poor because of their poor choices.
That may no longer be true in America today, which is a sobering thought. America has become a country of soaring income inequality. For decades, America was not only the richest nation, but also the most middle-class – sitting right in the middle of the world's nations in terms of income inequality.
That's no longer true. Over the last 40 years, income inequality has soared. We now trail Brazil (land of a million slums) and Mexico (land of narcotics) as the G20 nations with the widest amount of income inequality. The drawbridge is going higher and higher...
That has led to an entire industry that exists to exploit the poor. Consider the recent union-backed move to raise the minimum wage.
I could explain, using a million examples, why minimum-wage laws are terrible for poor people. That isn't in doubt. When wages rise above the marginal value of labor, there is no longer a reason for employment. Thus, minimum-wage laws destroy jobs.
Why, then, are the politicians so determined to raise minimum-wage laws? Consider the new law in Los Angeles, where city council passed a $15.37 minimum-wage law for large hotels. (There goes room service...)
However, the law contains a provision that allows unions to waive the requirement in collective bargaining. The law is actually a cudgel designed to benefit unions.
If you're a hotel, you have a choice: pay an uneconomic wage... raise your prices to compensate and watch as all of your business goes elsewhere... or partner with the union to force your employees into a collective bargaining agreement that will see them earn less and force them to pay union dues. Guess where those union dues go? Directly to Democrat politicians.
This is just one example out of thousands that show how promises to help America's middle class and poor end up simply empowering the political class. Folks who think Obama was going to give them free health care should see what actually happens when they try to call a doctor. Meanwhile, have you seen the huge rise in managed care stocks? Have you seen the drug company stocks?
One more example... Obama says he will help you pay for college. A law passed last year that allows students to avoid paying back their student loans or strictly limiting the payments to only 10% of their discretionary income. There are now 1.9 million Americans enrolled in the program, sheltering $101 billion in loans. Surely this is the way over the drawbridge, right?
It's a way for student loans – even people with hundreds of thousands of dollars in debt – to be financed by "poor" students. Maybe. But the loans are only forgiven if the students work for 10 years in government or for a nonprofit – like a "community organizer," perhaps. Imagine your career potential if you spent the years between 25 and 35 working in government or politics. Who does this really empower, the students or the politicians?
There's a drawbridge opening in America. It's a bridge that's being forced open by economic policies that favor the rich and the powerful rather than the wage earners and savers. And on the side of the poor, there are a bunch of people who claim to help... but who really just exploit.
What should you do? Follow Ayn Rand's advice and don't be one of them. Don't get into debt. Don't believe that spending $100,000 on college will save you. Don't believe that working for the government is the answer. Realize that in America today, you're not going to become wealthy being a wage earner. You must – must – find a way to acquire assets. That's the only way across the bridge.
You can do so by starting a business of your own. You can do so by getting into a job (like sales) where your earnings can vastly exceed the average earner. And you can do so by learning to invest wisely. Saving by itself is no longer enough. That's where we can help...
We've now posted more than 100 different – and completely free – articles about investing on our website. Spend some time at our investor education center. The secret to wealth in America is sitting right there...
Start with our "11 Steps" manifesto... These are the ideas we wish we had learned before we invested a single dollar.
Step 3, for example, teaches you the No. 1 factor in your investment success. If you don't understand this idea, you're almost sure to destroy your chances of financing your retirement with your savings.
Step 5 shows you what you're actually buying when you purchase shares of a stock. This will forever change the way you view your investments.
Step 8 is often the hardest for new investors to practice. But it's one of the most powerful tools at your disposal.
Read through the "11 Steps" right here.
Once you've gone through all 11 steps, spend time this weekend reading through the "Secrets of Financial Insiders" section of the education center. There are 15 essays... They'll take about five minutes each to read.
In less than two hours, you'll understand more about how the market works than any of your friends, family, or neighbors.
In particular, don't miss editor in chief Brian Hunt's essay on why your broker knowingly gets you into losing trades... Extreme Value editor Dan Ferris' essay on why you, as an individual shareholder, just aren't that important... and my essay detailing the only chance you have at becoming a successful investor.
Once you have that as your foundation, you can explore the rest of what the education center has to offer, including...
A Private Letter from Warren Buffett
The message at the heart of this essay addresses the very foundation of successful investing.
The message at the heart of this essay addresses the very foundation of successful investing.
There's No Secret to Investment Success... Except This One
Where to find the world's greatest businesses today...
Where to find the world's greatest businesses today...
The 5 Magic Words Every Trader Says Over and Over, All the Time
This idea is something that could immediately turn a struggling trader into a highly profitable one.
This idea is something that could immediately turn a struggling trader into a highly profitable one.
Never Retire
Instead of retiring and giving up all of your "active" income, consider this idea.
Instead of retiring and giving up all of your "active" income, consider this idea.
One last thing... If you would like to glean insight from some of the brightest political and financial minds in the world, I strongly encourage you to join us in Nashville on October 18. You'll hear from former Congressman and leading libertarian Dr. Ron Paul. Currency expert Jim Rickards will also tell you what the government is doing to destroy the U.S. dollar – and accelerate this widening income disparity. You'll also hear from Agora founder Bill Bonner, me, and a host of other bright minds. To reserve your space in Nashville, click here.
And if you can't join us in person, you can live-stream the entire event for only $199. Get the details here.
New 52-week highs (as of 10/2/14): none.
In yesterday's mailbag, we asked subscribers to share their experiences with coin dealers. Today, we're sharing some of their responses. Send your thoughts and comments to feedback@stansberryresearch.com.
"You asked, I answer. I have bought gold and silver coins at Assets Strategies International in Rockville, MD. No complaint, smooth transactions." – Paid-up subscriber Peter Luchsinger
Goldsmith comment: We're glad to hear that. As regular Digest readers know, Asset Strategies International is one of our top-recommended coin dealers.
"I have purchased gold and silver – mostly Eagles – from Apmex.com. VERY happy with those folks. GovMint is OK it is just expensive BUT they come up with some cool stuff and call me if they think it fits my 'pattern' of buying." – Paid-up subscriber Arnie Altaffer
"I've used Miles Franklin for over 2 years because they have had the best pricing and consistently reasonable delivery timing. Also they can ship offshore for safe storage." – Paid-up subscriber Jay Taylor
Regards,
Porter Stansberry
Baltimore, Maryland
October 3, 2014
James Altucher: College is a waste of time and money...
Back in May, in one of his most controversial pieces ever, James Altucher called college a "scam." Last month, he further discussed his argument on episode 252 of Frank Curzio's S&A Investor Radio podcast.
In today's Digest Premium, James explains why a "real world" education is far more valuable... and explains why college is "the great American myth"...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
James Altucher: College is a waste of time and money...
Editor's note: Back in May, in one of his most controversial pieces ever, James Altucher called college a "scam." Last month, he further discussed his argument on episode 252 of Frank Curzio's S&A Investor Radio podcast. In today's Digest Premium – adapted from that episode – James explains why a "real world" education is far more valuable... and explains why college is "the great American myth"...
College is the great American myth.
Even my 12-year-old says to me, "Well, don't you need to go to college to get a job?" The answer is unequivocally no. I (James Altucher) first started writing about this idea back in 2004 or 2005 in my column for the Financial Times. Everybody rejected this idea. Now, more people are starting to realize college isn't worth it.
Part of that is a function of the cost. Every year for the past 40 years, college tuition costs have risen faster than inflation. We have about $1.3 trillion in student-loan debt. A group of 22-year-olds shouldn't have that much debt. You don't grow an innovation economy by putting the innovators in debt. Clearly, there's something wrong with the equation... and it doesn't take a college education to figure that out.
One really good example of college not being worth it is the Massachusetts Institute of Technology (MIT). MIT puts its entire curriculum – including videos of the lectures, homework, and the readings – online for free. You don't even need a scholarship. You miss out on some of the interactions with the professors, but the flip side is you could probably finish MIT in six months by looking at its online curriculum.
It's not just a cost issue. Another issue is time. Why spend four or five years going to college when you could spend that doing other things? If you want to make money, get a job and get real-world experience, and do the MIT course curriculum at night. Not only will you get a college education, but you'll also get a real-world education.
I'll give you an example from my personal life. I went to Cornell for computer science and engineering. I took all the courses required and I spent a significant amount of time doing computer programming to get my degree. Then I went to graduate school at one of the best programs in the country for computer science, took a job in programming on campus for several years, and went to New York and took a real job as a computer programmer.
The first thing my employer realized was that I really didn't know how to program at all. I had just spent eight years studying programming and programming in an academic environment... And when I had a job, I was so bad that they had to send me to remedial programming classes for two months so I could get up to speed with the bottom layer of their programming employees.
That was a painful lesson. I was in debt. I had wasted all this time in graduate school. I had spent all this time programming in these academic jobs. But I wasn't programming anything that was being used in the real world... so I wasn't used to solving problems that actually help people.
In the end, I don't really see what people get out of college, other than a piece of paper. Even Google now says that having a college degree is not a requirement for some of its jobs. Google used to check your SAT scores before it would hire you. Now, it doesn't care at all.
– James Altucher
James Altucher: College is a waste of time and money...
Back in May, in one of his most controversial pieces ever, James Altucher called college a "scam." Last month, he further discussed his argument on episode 252 of Frank Curzio's S&A Investor Radio podcast.
In today's Digest Premium, James explains why a "real world" education is far more valuable... and explains why college is "the great American myth"...
To continue reading, scroll down or click here.