How To Save Yourself From Government Induced Poverty

My father in law is somewhat of a rare breed. He was a farmer, lawyer, police commissioner, and now commercial real estate owner and investor. Like many of his generation, he grew up during the Great Depression, and learned to save prolifically as he and his four brothers could afford little else besides what they could hunt and grow on the farm.

Through hard work, he rose above his circumstance, and become a millionaire ($8 million to be exact) when he sold the farm in in the late 90s. He reinvested the funds and purchased a 9-acre commercial real estate property in Chicago’s NorthWest Suburbs, and by all measures is now in retirement. Now do you think the government will do one tenth of the same for you?

The reality is for many Americans that retirement has become more difficult than ever, a pipedream. Not because the world is any different since my father in law’s time, but because many of us have simply forgotten how to play.  

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The Founding Of Social Security 

A Brief History Of Social Security

The establishment of social security in America occurred on August 14, 1935 after President Franklin D. Roosevelt signed into law the Social Security Act of 1935 as part of the New Deal. The social security program was originally implemented to aid the elderly as poverty rates among senior citizens had well exceeded 50% during the era of the great depression. The program eventually expanded through the coming decades to cover other classes of Americans defined as vulnerable such as the unemployed and the disabled, leading to the inevitable evolution of the entitlement behemoth that we all have come to recognize today.

While this appears fine and dandy on the surface, there is one glaring problem. Social Security was never originally intended to be a permanent means of retirement, but merely a supplemental income insurance. In fact, I would argue the government pays retirees just enough in social security to keep them poor and begging for further government intervention.

Factors Of Poverty

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In Edgar K. Browing’s groundbreaking 2008 paper, The Anatomy of Social Security and Medicaid, Browning had come to the conclusion that our modern day social security system was not only insolvent, but that the rate of return for social security over the last 50 years (a return that Browning had measured at 1.5%) far lacks the average rate of return of the S&P 500 (9.69% over the same time period ). Had investors simply invested their social security contributions in the market themselves, they would clearly have been far better off than what they would have received from the government instead.

In fact, economists such as Robert Frank in his groundbreaking book Principles of Macroeconomics even went as far as to argue that social security is not an investment at all; as individual contributions are not invested in any form, but merely handed out to current retirees, the handicap, and the disabled at a rate that far exceeds what current workers pay into the system. As of 2017 in fact, the Social Security Administration even admitted to a 40 trillion dollar shortfall, and baby boomers have not even begun to retire in mass!

The lesson here is a painful, but simple one. The Social Security Administration will neither invest your money wisely, give you access to it should you need it before 62, or guarantee it will be there when you retire. If this was your broker, would you have changed brokers already?

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Keynesian economics: The Power Of Poverty And Government Policy 

Keynesian Economics, also colloquially referred to as depression economics, is the practice of lowering interest rates and increasing government spending in order to stimulate the economy. The glaring problem with this economic model is that at the very best the economy is brought back to near full employment under false pretenses (i.e., federal jobs that will disappear as soon as funding evaporates), and at the very worst national debt balloons and consumers are encouraged to spend recklessly under the pretense of easy money.

When the United States economy began to stagnant in 2008 due to seven years of war at a cost of $280 million per day, the continued outsourcing of American jobs through multilateral trade agreements such as the North American Free Trade Agreement (NAFTA), and the escalating pace of corporate inversions (i.e., the relocation of American Businesses outside of the United States) which keep billions of US dollars overseas, the Federal Open Markets Commision (FOMC) began a period of quantitative easing (i.e. Keynesian Economics) in the United States that has driven interest rates to near zero percent for over the last 8 years.

The unintended consequence of this action, or intended depending on who you ask, is the widespread market manipulation that it creates. Retirees and working adults nearing retirement are driven out of bonds as interest rates continue to decline in hopes of pursuing an equitable yield in the equities market. As such, equities continue to climb while investors pay elevated prices under the pretense of a false bull market, and in turn shift the balance of their portfolio into an overpriced asset that will decline as soon as the quantitative easing ends. Compound that with investors being vested in an asset class for above their tolerance for risk, and you have a recipe for disaster.

 

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How The CPI Is Manipulated To Erase Your Wealth

Inflation, in the range or 2-3% per year, is generally seen as healthy for the economy. Unfortunately, our interest rates here within the United States have fallen to a degree of manipulation that has generally gone unnoticed for quite some time.

Inflation is defined as the rising cost of goods and services over a measured period of time. The higher the inflation rate, the more significant the erosion of your dollar’s purchasing power. Inflation by design is a tax on money itself, as $100 put away in 1950 would still only be worth $100 today, and buy you a whole lot less to boot than had you simply purchased any other form of investment. Sure seems like our fiat money sure spends better than it saves doesn’t it?

The Consumer Price Index (CPI) is the main instrument the Bureau of Labor and Statistics uses to track inflation. The CPI is constructed by building a common basket of goods (i.e., milk, bread, clothes) and tracking the upward changes in price over time. This is significant because many programs that we have come to rely on today are based on the CPI. Programs such as social security, cost of living allowances for the military, and even federal pensions are just an example of programs that track our CPI

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These programs are manipulated by using what is known as substitution bias. Substitution bias occurs within the CPI when data on consumer expenditures switches from a more expensive product(s) to less expensive ones.

Only without substitution bias can you accurately account for how much more expensive an item has become over time. If the Bureau of Labor Statistics (BLS) has decided, as it has many times in the past, that a pound of steak has become too costly for their model, the BLS will simply substitute that purchase for a pound of ground beef instead; in turn preventing the CPI from rising. 

The Government’s Role In Poverty

The problem with this is not whether or not you eat beef, I could personally care less, it is that by swapping out items within the CPI for cheaper items, the BLS can now prevent the CPI for rising. Meaning once again that programs such as social security, military pensions, and cost of living allowances that are pegged to the CPI do not rise accordingly. Just your everyday cost of living that you already pay every month out of pocket.

If we were to implement this same shell game to determine our own portfolio’s rate of return as we do within the CPI, we would find ourselves only able to afford an inferior standard of living; despite providing a 20-year body of work in which we saved every paycheck for retirement. 

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Remarkably, Not All Hope Is Lost

Despite a vast ocean of federal government programs intended to keep you poor, as a desperate population is easily controlled and has no choice but to keep working indefinitely to pay off their debts, I am here to remind you that not all hope is lost. You have simply forgotten how to play. 

It does not matter how many years you have been saving, whether you started two minutes ago or 20 years ago, all you need to do is follow these guidelines to begin to regain control of your retirement. 

 

The Steps You Can Take To Save Your Retirement 

For most of us, there is no escaping social security, what you can do however is create your own. For every dollar that you contribute to social security, at a minimum that needs to also be what you contribute to your 401(k) and IRA. When that becomes too easy begin to multiply that figure by two, three, or even four times until you achieve a number that you can comfortably save every month. 

Secondly, start looking for alternative investments. While large-cap stocks offer you security and reasonable returns over time, settling for a 10% return is not good enough on its own, and cryptocurrency is the answer. I’m not telling you to buy bitcoin, or even learn how to mine the currency itself, but you need to start buying alternative investments. If you would have bought a single Bitcoin for 0.06 when it released, you would have over $10,000 now. Now just imagine if you bought 10, you would have over $100,000 in which you could save for retirement.

Set aside $10 every month simply to invest in new cryptocurrencies as they come to market. Worst case scenario, you are out $120 at the end of the year, best case scenario, you are able to reach retirement and start living the abundant life that we were are meant to live. 

Lastly, and most importantly, stop getting rattled out of your investments when the market moves violently. Investing is a long man’s game, and you need to play it as such. Just as in chess, one 1 bad move can undue 40 good moves. Don’t let the lowering interest rates cause you to sell out of your existing bonds, don’t rely on social security, and most of all don’t chase the broad market simply because every other major broker in town is doing the same.

Learn to be a contrarian save for your retirement yourself. Without counting on social security, without counting on the CPI, and most importantly, without counting on government induced povertyBest of luck in your retirement endeavors, and God bless.   

 

Posted by Jackson

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