AMA 125 – The Rich Don’t Pay Tax! … or Do They? with John Gaver

Jason Hartman talks with John Gaver, editor and publisher of Action America and author of “The Rich Don’t Pay Tax! … or Do They?”

Key Takeaways:

[5:11] What the left is doing that’s making people vote with their feet

[11:15] What data to look at that isn’t corrupted by politicians and economists

[15:52] Discussing the concerns of a national sales tax

[21:40] Who a flat tax would hurt the most (it’s not who you’d think)

Websites Mentioned:


AMA 124 – Due Diligence on Investment Funds with Salvatore Buscemi


Jason Hartman talks with Salvatore Buscemi, author of The Art of the Raise about different deal structures in real estate investments.

Key Takeaways

[5:08] Importance of not investing based on personality

[10:03] What you need to do before you even set foot in a deal

[15:21] How different needs in investors change the investment strategy

[27:05] What Jason thinks nobody ever reads

[35:11] Why you need to know the other investors in the deal

Websites Mentioned



AMA 123 – I Love Real Estate! with David Wood

Jason Hartman discusses 3 different strategies for investing in real estate, what an executive flip is, how to not get caught in the fools game, the difference between an investment and a speculation, the bubble of 2005 with David Wood, from Amplified Living.

Key Takeaways:

[5:30] “I prefer the high end flips because i think the people who are going to buy a million or 2 million dollar house, often lack vision.”

[10:07] “If you’re buying real estate with a long term vision of having complete financial freedom, then the money coming in you shouldn’t be spending.”

[21:02] – Everything about real estate investing involves disciplines

[26:57] – “And i find kindness is one of the great methods of negotiation”

Websites Mentioned:

AMA 122 – The 2016 Republican Presidential Race with Candidate Mark Everson

Mark Everson is currently a Republican presidential candidate for the 2016 election, as well as the former Red Cross CEO and former Commissioner of the IRS, about the current race and how stands out in a field as large as this.

Key Takeaways:

[4:24] I would suggest to you that we’ve lost this traditional approach to our nation

[9:55] Some of the Republicans would knee jerk, just defend Wall Street. I’m not doing that

[14:49] People tell me stories, people have the insurance but they’re not using it!

AMA 121 – Enjoy the Decline of America with Aaron Clarey

Aaron Clarey is the author of 5 books, his most current being Enjoy the Decline of America. He also an economist, running the blog Captain Capitalism. He talks with Jason about the USD status as the world’s reserve currency, the current environment of political correctness, how the old economic building block of society is failing us and more.

Key Takeaways:

[6:25] – “pursuing such socialist and parasitic policies are not good at all for any country and should never be repeated again”

[10:15] – “we no longer value a child or the family as the basic building block of the economy”

[15:05] – if you want to nail it down to one thing, it’s unfunded liabilities

[22:30] – they don’t know that by voting Obama in twice that they have fundamentally shifted the tenor of the United States.

Mentioned in this episode:

AMA 120 – A View in the Future: Changes in the Investment Industry with Nathan Jaye


Nathan Jaye is the founder of Ziprz and contributor to the CFA Institute Magazine. In an article, Nathan interviewed Tom Brown, the global head of investment management at KPMG on some of the interesting financial changes we might see in the next decade and a half. Jason invites Nathan on the show to talk about the article he wrote and to discuss why millennials are not a fan of Wall Street.


Key Takeaways:

[2:40] Nathan talks about the past financial crisis in 2008.

[4:00] Why do millennials not relate to Wall Street?

[7:05] Wall Street’s business model wants to ‘sit down and talk about it’ and many millennials who are used to making purchases on the internet do not like that.

[9:05] Nathan and Jason talk about robo advisers.

[11:15] Technology will affect the way we traditionally bank.

[15:45] We’re slowly starting to see changes in technology-incorporated clothing.


Mentioned In This Episode:



71% of young people would rather go to the dentist than go to a bank branch.

In the last few years we’ve seen the real growth of these so called robo advisers.

We need to design clothing more in a way that our devices work with them.



Jason Hartman:

It’s my pleasure to welcome Nathan Jaye to the show. He is founder of Ziprz and contributor to the CFA Institute Magazine and I recently read an interesting Business Insider article that he wrote, which is talking about the future of the finance industry, the investment industry in 2030. You know, there’s been a lot of talk automation in every area of our lives. Let’s look at the future of our investment world and what it would be like in the networked economy in which we live. Nathan, welcome, how are you?


Nathan Jaye:

Great, thanks so much for having me.



Yeah, it’s good to have you on the show. As Yogi Berra said, the future ain’t what it used to be.



Well, that’s so true. That’s so true and I think this story line is getting a lot more attention these days. Recently The Economist came out with a special report on technology and banking and how the interactions are changing the landscape and the article I wrote for CFA Magazine had to do with a report by KPMG last year, I believe, going very in depth into all kinds of changes in the investment management business.



Okay, so talk about some of those changes if you would. I mean, so you based off largely off the KPMG report, but you know, what are their and your visions of the future for this.



Well, really before we get to the future I think it’s helpful to a little bit go into the past.



Fair enough. That’s a good point. Past first, yes.



The interesting story line here is a lot of this was, at least, the soil for this was set out of the financial crisis of 2008 where Wall Street banks were really hurt in many ways, both financially and in their trust standing among their customers and among the public. At the same time the crisis didn’t touch Silicon Valley and tech companies in the same way, so they emerged from the crisis much more healthier and perhaps more confident, so what we see now at lot of the technology companies are moving into areas traditionally held by Wall Street and making different inroads with the public in those spheres.


So, in fact there’s a report recently that 71% of young people would rather go to the dentist than go to a bank branch. So, that just illustrates how the younger generation has not as much as natural affinity with traditional Wall Street and banking services. They are more used to using Apple, Google, and Amazon.



Just out of curiosity, what are your thoughts, Nathan, on why the millennial generation, why generation Y doesn’t relate to Wall Street? Did they view it as I do? That it’s the modern version of organized crime or are they just not into that sort of, I don’t know, the feel like I get when I go to financial advisers it’s always sort of this kind of good old boy type of thing of, you know, who do you know, I don’t know, that’s always how it feels to me when I sit across someone from  Merrill Lynch or Ameriprise or any of those companies.



Well, that’s a good insight and I think a lot of it is that just is not the way that younger people are used to doing things. They are not used to going in somewhere, sitting down at a desk, and talking to the guy on the other side. So, while they may have ideas about organized crime and Wall Street, etc, and the background somewhere. I think a lot of this is a lot more visceral . People just – younger people just don’t do things this way. They touch things on the internet.


They use their mobile devices, they use their iPads and they correspond with technology companies in that way, they are very comfortable doing that and one of the things that the KPMG report highlights is technology, or excuse me, financial and investment companies traditionally aren’t very good at reaching younger people through technology and I’ve noticed that consistently at my work at CFA Magazine when I may be researching or looking into one investment manager or another, often they are mid-market and you look at their websites and they just look they’re built in 2003.


So, it’s not the website that the younger generation is used to and you can’t really interact with it. So, there’s this divide in terms of generations I see, in terms of what financial companies are doing with their technology and what younger people are used to and are demanding more and more.



Yeah, I would definitely see that and, you know, it seems like a lot of these financial advisers, they sort of, you know, they will bemoan the SEC and FINRA, yet at the same time, I think they use that as a sales tool. I think they actually love it secretly because, I remember one I was dealing with several years ago had, I had sold one of my companies and had a decent amount of money to invest and he’s like, let’s just meet and talk about it and I just wanted him to send me something, send me a link to something I can look at about the performance of his model portfolio and so forth over the past few years and he couldn’t send me anything.


He hid behind the typical FINRA, SEC type stuff. Oh, I can’t do that, it’s all regulated, and you know, I don’t know, I just feel like this industry has to kind of evolve and grow up. People want to see things. They want to see stuff documented. It’s always, let’s sit down and talk about it. I don’t want to sit down and talk about it. I want to see the goods, show me the charts.



Exactly, exactly, and I think they’re going to have to change or new competitors from one area or another are going to come in and make them change. Now, it’s true they have a lot of regulation to deal with that preps other industries, but you know, that’s only a excuse.



Yeah. Okay, good. What else do we need to know about the past and the present and I can’t wait to look in the future with you.



Well, I think we’ve done with the past. The only other thing I might bring up is the emergence of peer-to-peer technologies over the last, I’d say, 15 to 20 years. I mean. We are all familiar with Napster, the file sharing program that became such a hit in the late 90s and of course the traditional banks are your centralized hub for financial transactions, so we have this real c-change in terms of how correspondence between people and individual is something that we’re seeing in the last decade or two and it’s much different than the centralized way of doing business that a lot of traditional investment managers and banks are operating on.



It’s really interesting and I really can’t wait for it to see how peer-to-peer disintermediates a lot of the banks in terms of lending, things like the lending club, etc, there’s various online sites that allow peer-to-peer lending and burrowing, but how does it impact investment advice. Where does the peer-to-peer part of that come in?



Well, I’m not really familiar how it’s affecting investment advice. I mean, we have in a very large scale way there’s all kinds of chat rooms, you can get advice from anywhere now from anybody, basically. There’s almost too much advice.



Right, I agree and the old saying for that is advice is usually worth what it costs.



Yeah, no, there’s something to that. At the same time though, as you were mentioning, you had the CEO of Betterment on and interns of investment advice, I mean, it’s not necessarily peer-to-peer but the whole emergence of robo advisers is definitely changing the way we’re looking at how we get advice and how much we want advice.



Talk more about the robo advisers, using computers and algorithm to advice people. I mean, certainty the high frequency traders have taken advantage of this in a big, big way at the personal level, I mean, what is it all going to look like in 2030?



Wow. It could look a lot different. In the last few years we’ve seen the real growth of these so called robo advisers, companies like Wealthfront and Betterment, Personal Capital, and for those that don’t know, these are companies which are basically making the investment process very easy, so you select a few different priorities of yours, investment priorities and they basically put your priorities into their system and they invest your money in a different set of index funds depending on who you are and what you’re interested in.


So, it really scales down the whole process, you don’t have to go in to talk to anybody, you don’t have a long conversation with the person who then decides to do with your money. Basically go online and five minutes later you’re done. So, that really appeals to younger people and also me and it kind of feels good, it feels familiar, it feels like placing an order on amazing. It feels like doing a transaction on any technology website which you’re in and your out and then you’re on to whatever else you’re doing in life.



That’s just great. I mean, you don’t have to rely on some guy who wants to pay for his golf club membership with your investment money. You’re just much ore, you’re much more empowered. I mean, this is the era of the empowered consumer.



Exactly and I think a lot of people now are questioning, you know, when I do go to a financial adviser, how much is he adding? How much value is he adding to my investments? Is this actually make a difference and we don’t really know and it should be interested in the coming years to see some studies based on how our robo advisers are preforming compared to other asset advisers.



Yeah, certainty, okay. So, what other types of changes do you see for the future?



Well, I think, for one thing, it’s just interesting again how technology is making inroads into traditional banking. I don’t think people would have predicted a number of years ago that people using Apple Pay, Apple is now getting .15% of all transactions. So, who could imagine that Apple would be getting a cut on the credit card business at this point, but there we are.



Right, the interesting part of that though is Apple Pay is just using the credit card platforms anyway. In my Apple Pay account, I just got it linked up with my American Express and my Visa and my MasterCard, of course, nobody really wants to take American Express, because they rip off the merchants, that’s another tangent, but you know, there are really, it’s just a credit card processing platform really. It’s not a disruptive – maybe that’s where it’s going, but right now, right? That hasn’t evolved to be that disruptive yet, do you think?



Well, I’d say it’s the beginning. Apple wasn’t involved with this at all, the credit card companies at their platform and they took all the profits and now just the fact that Apple is getting a share of that is a change and at the same time you see a lot of different other kinds of mobile payment systems. You have Venmo, which a lot of people are using today and quick payments, of course you had Paypal for a number of years. A small percentage of people are using Bitcoin to pay each other for different things, so you’re beginning of ways to pay each other, pay people, quickly and simply.



Sure, yeah. It’s really, really fascinating. I mean, I’m very excited about it and we’ve got to lower the friction and the cost of transferring payments in the payments industry and all of that type of stuff. It’s just going to be good for the global economy, you know? It’s going to increase the velocity of money and I think improve things. Isn’t it amazing, Nathan that we by enlarge are still paying our bills the way we did a 150 years ago. Even if we bank online, as of course, almost all of us do, you know, all they’re doing is writing a physical check and sticking it in the mail. That’s hilarious that we’re still doing that to me.



Yeah, I think what you’re saying about the velocity of money is a really interesting factor too. I mean, the more we can get money in motion and get capital to people who are going to do things with it, that’s going to change the world in very interesting ways, getting capital to people who may not have access before, but have something to offer in terms of what they want to build.



We kind of talked about some of the future of the investment industry from the individual, from the consumer side and everything there makes sense. What about the institutional side and then I want to ask you also about investment advisers, you know, if someone listening is an adviser out there, what do they need to prepare themselves for? But first the institutional part, does it change anything there?



Well, it’s a little bit more removed for the individual consumer, but what Tom Brown who is head of the KPMG Global Investments branch was saying that institutions need to get closer to their consumers, their end-consumers. Right now they do things through, the larger ones, through third parties in terms of reaching people who have money to invest their clients and he says they need to reach their consumers, they need to get closers, they need to find out who they are and they need to find out what their needs are, they need to be able to talk to their end-consumers and that’s the way they’re going to keep those consumers as their clients.



How about the advisers? I mean, Goldman Sachs, the way they do business, it’s all going to be the same for them? The big institutions?



Well, probably nothing will be the same in 2030.



So, Nathan, give out your website if you would.



Well, the website for Ziprz is



What is Ziprz exactly? I know about CFA, but Ziprz?



This is actually a clothing line, so me and another designer, fashion designer, in San Francisco are redesigning the dress shirt to do away with buttons and we have a zipper where the buttons would be, so we have fresh and familiar combination, it’s go the structure of the dress shirt, but it allows you to dress down a little bit, which is perfect for people in Silicon Valley.



Yeah, very interesting. You know, I’ve been amazed that clothing has not really modernized much at all. Of course, some of the fabrics are getting more hi-tech, which is kind of cool, but with all of this technology around us, the concept of clothing hasn’t much changed.



Yeah, we’re starting to see changes, like you say with materials and other processes, but it’s a very physical business, you can’t digitize it. So, it’s a little bit more resistant.



I know. It needs to, I think we need to design clothing more in a way that our devices work with, though, that integrate with our phones and so forth. Of course we know there’s a couple of companies doing that, but no one is doing it in a big way, you know, so. Kind of a tangent, of course, but so what are your closing thoughts here, Nathan, on 2030 and the financial and investment industry?



Well, as we’ve seen just in the last 15 years of the internet, technology has changed almost every part of our lives and there are some businesses, some sectors which are less touched than others and eventually those will be touched by technology too. So, the encumbrance are going to have to change or they will be changed from the outside by other companies, basically.


So, I mean, you think of auto industry, Apple, there’s rumors that Apple is getting into making cars themselves and then if you bring it back to investment, the investment business, but the focus on the interview here is about them – for instance, Ali Baba, the giant Chinese Amazon, so to speak, they’ve launched their own investment business now and they’ve had huge success. So, in China, they are an investment player now and that’s just, you could say a clue as to what may happen here in the west or other countries.



Fascinating. It’s an amazing time to be alive. Nathan Jaye, thank you so much for joining us.



My pleasure, Jason.



This show is produced by the Hartman Media Company, all rights reserved. For distribution or publication rights and media interviews, please visit

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professional advice. Please consult an appropriate tax, legal, real estate or business professional for

individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network Inc. exclusively.

The Fed’s QE3 and the Bank-Stock Connection

AMA6-5-15The Federal Reserve’s third round of Quantitative Easing, that massive stimulus program intended to boost the economy in the years following the housing collapse of 2008, officially ended in October 2014. But as the dust settles, some financial experts point out that it may have been banks and stocks that benefited most.

The much-publicized housing bubble burst with a vengeance in 2008, sending the US housing market into a massive collapse that rippled out into the entire economy. Recession quickly followed, with all major sectors of the economy struggling to gain traction in the years following the housing crash.

To boost the recovery and get more money flowing into the economy, the Federal Reserve, arbiters of US money matters for nearly a century, initiated several rounds of “quantitative easing,” a plan to pump money into the economy and keep interest rates low by buying up massive amounts of mortgage backed securities and other bonds.

The latest and most ambitious of these, dubbed QE3, began in 2012 and involved buying a staggering $85 billion in securities and bonds each month, with no clear end date in sight. By early 2014, the Fed began hinting at a possible taper off of QE3 while keeping an eye on the performance of key economic sectors like employment and housing. Finally, after months of scaling back $10 billion at a time, QE3 was declared done at the end of 2014.

In all, QE3 turned out to be the biggest stimulus boost in US history. It added $3.5 trillion to the Fed’s ledgers and inspired imitators in other regions of the world, particularly the European Union. Thanks to the stimulus, US interest rates stayed at or near historic lows for much of that time, which was intended to encourage consumer confidence and boost sales of houses and other large purchases.

Not surprisingly, market watchers feared that the end of QE3 would see a steep rise in interest rates as well as inflation. That hasn’t happened. But while most financial experts acknowledge that the Fed’s ambitious plan did what it set out to do, others point out that QE3 actually provided its biggest boost to the banks and the stock market.

As QE3 was getting underway in 2012, financial and money management experts at The Motley Fool among others argued that although the intent of QE3 was to help borrowers get good rates on loans and encourage borrowing, banks themselves were reaping the benefits of the Feds’ bond purchases, but weren’t passing those benefits on to consumers. While interest rates did in fact stay low, banks were still charging the same fees for originating loans and other financial products.

While banks continued to originate mortgages, they didn’t hold them – they sold the majority of those loans off into the bond market, benefiting from differences between the bond yields and actual mortgage rates.

Now, it turns out that QE3 may also have played a role in the stock market’s surging recovery. According to a recent article from Business Insider, financial analyst Byron Wien of The Blackstone Group notes that the market’s rally since the housing recovery began has been boosted by a large shot of QE3 money.

According to Wien, the Fed contributed nearly $3 trillion toward the overall $13 trillion surge in stocks from 2009 to 2014. And now that QE3 is over, investors look toward a future without that so-called “easy money.”

The Fed’s foray into bond buying established connections with banking, stock markets and even international money markets, where it affected exchange rates and foreign monetary policies. Though the outcomes have largely defied the most pessimistic of predictions, questions still linger about whether the bold plan of QE3 gave a jumpstart to the economy as a whole, or to big money sectors like banking and stock trading. (Top image:flickr/EGlobeTravel)

Read more from The American Monetary Association:

Can big Banks Be Trusted With Pensions?

China’s New Silk Road Challenges the West

The American Monetary Association Team

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Can Big Banks Be Trusted With Pensions?

AMA5-27-15The biggest players in the US banking industry have been on the hot seat ever since the housing collapse of 2008 exposed a number of misleading, predatory and downright illegal practices perpetrated both at home and abroad. Now, as another round of penalties come down on five of the country’s leading financial institutions, one senator is questioning whether these banks can be trusted to handle their clients’ hard-saved retirement money.

The housing collapse of 2008 came about as a direct result of bad banking practices, which contributed to the housing bubble that later burst so spectacularly and left millions of homeowners in default or foreclosure. In the years leading up to the crash, banks large and small had been making loans with wild abandon, often to extremely unprepared borrowers.

Using a variety of hard sell and misleading tactics, mortgage lenders enticed buyers with no-down, no- interest or interest only loans that stated out with low monthly payments hat swiftly ballooned into larger ones that these homeowners couldn’t repay. Many claimed that they didn’t even understand the terms, and others said they were misled by bank officials.

As lawmakers and financial experts picked up the pieces after the crash, the nation’s biggest financial institutions – JP Morgan Chase, Citigroup, Bank of America, Barclays and several others in varying combinations – became the target of a string of criminal and civil investigations and lawsuits.

A wide range of malfeasance was unearthed in those actions, ranging from the famed “roboosigning” controversy in which foreclosure actions were slipped through with false signatures to accusations on the international front of manipulating the LIBOR exchange rates that drive world currency exchanges.

Most of the suits pressed against the banks have resulted in a series of multimillion-dollar fines and a few criminal cases against individuals. And the ongoing scandals did lead to the enacting of the Dodd Frank Wall Street Reform and Consumer Protection Act in 2010, which imposed tighter standards on mortgaged lenders and, indirectly, on borrowers as well.

But throughout all the investigations, charges, hearings, lawsuits and regulation, the banks involved have been allowed to continue conducting business largely as usual, with no interruption in the usual services they provide.

That may change, though, if US Senator Elizabeth Warren (D-Mass) has her way.

At issue are the most recent charges of manipulating international monetary exchange rates leveled against JP Morgan Chase, Citigroup, Bank of America, Barclay’s and the lesser-known UBS AG.

As a recent article from Business Insider reports, four of the five have already pleaded guilty to criminal charges of illegally tweaking international exchange rates, while UBS AG is expected to do the same in the coming weeks.

But although these banks have been fined a total of nearly $6 billion, they’ve been granted waivers from the Securities an Exchange Commission that allow them to conduct their usual securities based banking activities -with the notable exception of handling retirement pensions and plans. They need to apply separately to the US Department of Labor to request exemptions for managing those kinds of accounts.

In the past few years, workers in a all kinds of industries and businesses have seen their pension plans mismanaged, whittled away, or outright eliminated, thanks to bad judgment and shady practices on the part of both employers and the banks and institutions tasked wit handling those plans.

That’s why Senator Warren is calling on the Department of Labor to conduct public hearings before granting these banks any kind of waivers to conduct business involving pension plans and retirement funds.

It’s a move in support of the individual consumer, the worker hoping to have funds to live on after retirement. Given the past track record of these banks where responsible handling of client interest is concerned, and the SEC’s record of granting easy waivers, the call for Labor hearings is also a call for greeter accountability.

The provisions of the Dodd Frank Act and its creation, the Consumer Finance Protection Bureau, are largely aimed at protecting mortgage applicants from the kinds of bad baking that created the collapse – not pension holders. Hearings would shed light on these banks’ practices in the pension plan arena – and might create better protections and more accountability there too.

Bailouts of banks “too big to fail” and the willingness of the SEC and the Department of Labor to grant them waivers to do business as usual don’t provide much incentive for these institutions to clean up their acts. And that may mean they just shouldn’t be trusted with anyone’s retirement savings. (Top image:Flickr/KevFoster)

Read more from The American Monetary Association:

China’s New Silk Road Challenges the West

AMA119: The truth About Real Estate Hard Money Lending with Salvatore Buscemi

The American Monetary Association Team

AMA logo

China’s New Silk Road Challenges the West

AMA5-25-15The Silk Road, that ancient and mystical trade route that brought Asian silks and spices all the way to Europe, has long been the subject of story and song. But now, a new initiative by the Chinese government aims to revive the Silk Road’s storied route in a bid for Eurasian supremacy that both challenges the West and promises to open new doors for investors around the globe.

Chinese president Xi Jianping announced the New Silk Road Initiative in 2013 – an ambitious project that would create an unprecedented economic corridor that would eventually link Asia, Europe and Africa, with benefits for all the countries and regions along the route.

Among the key parts of the proposed plan: high speed railroads, massive infrastructure repair and development, pipelines and other conduits for energy, new distribution and shipping facilities and an array of support facilities all along the Road.

But the plan doesn’t stop there. China’s initiative also calls for a maritime version of the Silk Road – shipping lanes that would connect China with the Mediterranean Sea and Persian Gulf via the Indian Ocean.

To prepare for the New Silk Road initiative, in 2014 China established the Asian International Infrastructure Bank, an institution dedicated to providing startup money for the project. China itself put up $40 billion to launch the bank, and quickly began recruiting other members from the global community.

In less than a year, the AIIB has gathered significant support. Most Western European countries are on board, along with many in Asia and even the World Bank itself, all drawn by the promise of economic benefits not just for the region but also for the world, far into the future. For all these areas, the New Silk Road promises to pump new money into local economies, improve rural conditions, advance education and create jobs. It appears to be a win win situation for all parties.

But not everyone is on board – and some economists and global market watchers fear that China’s move to create such a multinational initiative is the opening salvo in a war for supremacy in Eurasia. China is already a leader in foreign investment and gold trading, and some worry that its dominance will eventually dethrone the US dollar as the standard for global currency trading.

That means the New Silk Road plan promises major changes in the geopolitical landscape of the whole region, as other countries jockey for their own dominance in a new world of global trade opportunities.

Needless to say, the US has not signed on as a member of the AIIB. When the New Silk Road project was originally announced, the US actively opposed it – but later reversed its rhetoric to say that it endorsed it all along. But now a number of America’s NATO partners have jumped on board, along with key allies in the region Australia, South Korea and New Zealand.

In order to maintain influence in the region, the US has proposed its own version of a multinational trade alliance, calling in the Trans Pacific Partnership. But while the proposed pact claims to be “trans pacific” it excludes both China and Russia, both of which have a strong presence in the Pacific region.

India, too, is coming up with its own trade initiative that would expand development and increase trade throughout Eurasia. Plus, plans for involving Iran in the new economic corridor would violate US-led sanctions against that country.

As a recent article from Business Insider points out, China’s plan is a game changer, unprecedented in scope and ambition. But regardless of the stance taken by US officials, the New Silk Road will need US-made technology and equipment, as well as an international team of experts in many fields. That means new opportunities for investment and entrepreneurship in areas all along the corridor.

China’s New Silk Road won’t be finished in a year – or even ten. But just as that ancient road lured explorers in search of treasures from exotic lands, this new version holds its own promise of riches on the road that never ends. (Top image:Flickr/ju-x)

Read more from the American Monetary Association:

Artificial Intelligence Changes the Finance Game

Will Robots Steal Your Job?

The American Monetary Association Team

AMA logo

Artificial Intelligence Changes the Finance Game

AMA5-22-15As far back as 1990, financial experts were predicting that in the not too distant future, investment and money management would be aided by sophisticated computer technologies. Flash forward a couple of decades, and that future is here.

Robotics experts predict that by 2025, robots and other kinds of “smart” digital technology will have achieved processing power equal to that of the human brain: an achievement of true artificial intelligence that promises to change our world in countless ways. Among them: investing, financial services and the global money markets.

The use of automated technologies in banking and finance isn’t new, of course; ATMs, so common now that we don’t even remember what the letters stand for, complex spreadsheet and asset management software, and even ebanking have been around for so long that these technologies are simply a part of everyday financial management for everyone from individuals to big corporations.

But true artificial intelligence takes those functions much farther, with the promise of making financial dealings of all kinds faster, cheaper and more accurate – as well as more user friendly. But experts warn that there are downsides to the onrush of AI technology, too.

What is artificial intelligence? It’s computing technology that’s several generations removed from simple automation. AI refers to the ability of a computer to understand questions, provide answers and offer options based on available information. With rapid advances in computing speed, AIs can sort information, make decisions based on branching options, and handle complex sequences o tasks in the same ay every time, removing the risk of human error.

The power of this kind of “smart” computer was once a novelty, trotted out to amuse and astound people with feats like beating a chess master at his game, writing poetry or predicting the future. But behind the scenes, supercomputers have been directing missiles, assisting in surgeries and medical research – and even acting as monitors and companions for the elderly.

Now, advances in artificial intelligence and other digital technologies affect just about every aspect of human life. Robots routinely assist nurses in hospitals. Artificial animals have been developed to move just like living ones, capable of traveling where humans can never go. AIs enable space probes to land on comets and visit Pluto.

These technologies also help to move money all around the globe. From the early days of ATMS and electronic transfers, financial experts now envision a world in which virtual financial advisors help with investment management and conduct transactions. Digital currencies can be kept and tracked in virtual “wallets” for transactions conducted at any hour, from anywhere.

AI technology will help investors calculate risk, make adjustments based on current conditions, and evaluate new opportunities. On the real estate front, these technologies let potential homebuyers take virtual tours of properties they’re interested in, “decorate’ them at the click of a mouse, and complete the purchase all in one interface.

It’s obvious that in a world where AIs are assuming more and more tasks normally carried out by people, some jobs filled by people would no longer be heeded. In this brave new world, financial planners, investment advisers, real estate agents and a variety of other professions would disappear.

Losing human jobs to technology is only one of the risks of runaway AI technology that worry many economists and market watchers. A world increasingly reliant on AI technology could be crushed if those systems were hacked or if they failed. And the increasing use of AI technology for military and defense purposes raises the specter of a global disaster arising from a system failure or other glitch.

Still, the shadow side of the advancing wave of AI technology is, as Jason Hartman points out, more of an opportunity, rich with benefits, than a threat. AI applications have the potential to revolutionize the way we do business and live our lives. And if you own a smartphone, use a GPS or boost your fitness regimen with a Fitbit, you know the AI revolution is already underway. (Top image: Flickr/ju-x)

Read more from The American Monetary Association:

Fannie Mae and Freddie Mac: Still On top In Home Loans?

The Digital Revolution: A New World in 2025?

The American Monetary Association Team




Fannie Mae and Freddie Mac: Still On Top in Home Loans?

AMA5-16-15Ever since the great housing collapse of 2008, legislators and regulators have tried to scale back – or even eliminate – federal mortgage megalenders Fannie Mae and Freddie Mac. But as new regulations n private lenders, the agencies everyone loves to hate just keep on ticking.

Fannie Mae and Freddie Mac collectively account for the majority of residential home loans serviced in the US. But even as their much publicized troubles fuel calls for their demise, financial experts worry: if they’re gone, will the scandal ridden private lenders be able to step up?

Fannie Mae (real name: the Federal National Mortgage Association) is an old lady now – and one with a colorful past. Fannie Mae was first created in 1938 as part of President Franklin Delano Roosevelt’s post-Depression New Deal. Fannie’s original mission was to help boost home ownership by providing local banks with federal money to finance home mortgages.

Fannie Mae would do this alone as a government backed entity for the next thirty years. But in 1968 Fannie Mae was restructured, splitting into two separate entities: a new version o Fannie Mae that was placed into private ownership to keep it off federal budget rolls, and a new entity, the Government National Mortgage Bureau, or Ginnie Mae, which remained under government ownership. It dodged the post crash chaos and is still the only home loan agency that’s fully backed by the US government.

Freddie Mac, or the Federal Home Loan Mortgage Corporation, came along in 1970 and was originally intended to be a competitor of Fannie Mae, in order to create a more robust secondary mortgage market and remove Fannie’s monopoly. But as the housing market balloon swelled and eventually burst in 2008, Fannie and Freddie both faced the same troubles.

Facing massive losses after the housing crash, they were bailed out by the government to the tune of $188 billion and eventually placed into conservatorship under the regulation of the Federal Housing Finance Agency. They’re still under that conservatorship today. But both Fannie and Freddie continue to originate the mortgage-backed securities that back home loans serviced by a host of private lenders such as banks, credit unions and other kinds of financial institutions.

Amid calls for ways to impose better oversight on mortgage lending and protect consumers from becoming victims of predatory lending practices, lawmakers from both parties began to explore ways to phase out Fannie and Freddie. Possible scenarios included greater privatization, complete dissolution, and tighter regulation.

But in the meantime, new laws targeting the banking industry and private mortgage lenders were tightening mortgage lending standards and making it harder for marginally qualified buyers to get mortgages.

In the scandal ridden years after the crash, virtually all of the nation’s leading banks fell under investigation for charges of fraud, misrepresentation and other illegal activities. So the Dodd Frank Wall Street Reform and Consumer Protection Act became law in 2011, ushering in a number of new rules that banks and other private lenders had to follow in order to avoid penalties.

The new regulations included the creation of the Consumer Federal Protection Bureau, which promptly imposed the Qualified Mortgage Rule on new loans serviced by most banks and other institutions. In order to avoid penalty and major losses, banks had to ensure that the mortgages they serviced conformed to the tighter standards of the QMR, which included such things as higher credit scores, a stricter debt to income ratio, and larger down payments for home purchases.

But the new regulations meant many potential buyers couldn’t qualify for a mortgage, which threatened to stifle the already struggling housing market. In a time when home ownership was already at the lowest rates in over two decades, the new regulations designed to restore order in the housing market appeared to be stifling it instead.

In the meantime, Fannie and Freddie instituted new policies of their own, restructuring the loan securitization process and relaxing down payment and credit score requirements for mortgages they sponsored. These were steps aimed at supporting a housing recovery facing a slowdown because of the very regulations aimed at preventing another crash.

With the mortgage lending industry in flux and would be buyers locked out of the lending process, Fannie Mae and Freddie Mac continue to dominate the US home loan landscape And although they’re still in the crosshairs of legislation aiming to reform the mortgage markets, they won’t be going away any time soon. (Top image: Flickr/futureatlas)

Read more from The American Monetary Association:

The Digital Revolution: A New World in 2025?

How Does the Fed Manage Inflation?

The American Monetary Association Team


The Digital Revolution: A New World in 2025?

AMA5-11-15Computers that move at the speed of the human brain. A world where every human being can know anything, anywhere, any time. Data streaming through a trillion sensors to connect the whole world. Though these things sound like part of a science fiction movie about the far future, that future is now.

Experts from a variety of fields including economics, robotics and psychology predict that those extravagant predictions of a sci fi future will become everyday reality in just one short decade. From modest beginnings in single computer chips, the digital revolution is expanding exponentially – and it has the potential to reshape life as we know it.

Robotics experts have long predicted that robots and other kinds of artificial intelligences will achieve the level of human intelligence, and that milestone is expected to come within the next decade. By 2025, a computer costing just $1000 will be abl3e to process data at 10,000 trillion bytes per second. If that sounds stunning, consider that it’s the speed at which the human brain already works.

Armed with that new level of intelligence, robots and other kinds of smart technology will play a much larger role in complex fields like medicine, with the potential to revolutionize healthcare. With greater precision and wider application, AIs could push health care costs down and give ordinary people far greater control over their own health.

These technologies are already in use in healthcare settings ranging from the operating room to assisted living facilities. Robots perform routine nursing tasks such as dispensing medicines and delivering meals, act as companions and monitors to the frail elderly, and conduct diagnostic exams. All these applications could streamline the healthcare industry and substantially reduce costs.

This brave new world of 2025 is also one of global connectivity and shared knowledge – the Internet of Everything. Within a decade, the world will be connected by a network of over 100 trillion networked devices. And those devices all have multiple sensors, working ceaselessly to collect data from multiple sources. The result? A multi-trillion dollar economy driven by an unprecedented flow of data from all over the world – and beyond it.

This massive, ceaseless flow of data collected by and streaming from cheaply produced and easily available devices could create a world of “perfect knowledge” in which anybody could in theory find out anything, anywhere, any time. For the first time in human history, knowledge is available to anyone who seeks it.

That puts unprecedented power in the hands of individuals rather than the gatekeepers society designates, such as schools, publishers and government entities. People who can’t afford expensive educations can learn from anywhere. Anyone with an idea can share it – and it becomes harder to hide institutional blunders and abuses from a watching world.

This world of perfect knowledge driven by the Internet of Everything also brings that knowledge and connectedness to virtually every corner of the world, creating new opportunities for people in impoverished and isolated areas of the world to connect with others and create new things.

Without realizing it, we’ve already stepped into that future world. Smart technologies, virtual reality applications and robotic assistance for a variety of tasks are relatively commonplace today. But those applications and many others are developing at exponential rates – and could do so virtually indefinitely.

That’s the prediction at the core of Moore’s Law, coined by Intel CEO Gordon Moore nearly half a century ago to describe what happens to computer transistors over time. According to Moore, the number of transistors that could be placed on a computer microchip would double every year – and that the trend would continue indefinitely.

Since then, Moore’s Law has been used in a broader way to describe the exponential growth of all kinds of industries and enterprises such as the current digital revolution, which is characterized by dramatic increases in power along with a corresponding decrease in cost, just as Moore predicted.

As Jason Hartman points out, we’re living in the most exciting time ever, a time when change is the only constant. And as digital technology advances at light speed in every area, change is coming faster and faster, with the potential to transform life as we know it in just ten short years. (Top image: Flickr/ju-x)

Read more from The American Monetary Association:

Will Robots Steal Your Job?

AMA 119: The Truth About Real Estate Hard Money Lending with Salvatore Buscemi

The American Monetary Association Team

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AMA 119 – The Truth about Real Estate Hard Money Lending with Salvatore Buscemi

Salvatore Buscemi is the author of Making the Yield: Real Estate Hard Money Lending Uncovered as well as the Managing Director for Dandrew Partners New York. He talks to Jason Hartman on the subject of finding experienced fund managers, the problems with crowd funding, dealing with inexperienced investors, and much more on today’s show.


Key Takeaways:

[1:45] Salvatore talks about his book, Making The Yield: Real Estate Hard Money Lending Uncovered.

[2:50] You can’t take $2,000 from someone and really invest or place that capital meaningfully.

[9:00] People are going to real estate fund managers who have no experienced and are losing their money.

[19:45] Real estate crowd funding deals are tricky, because now the developer is dealing with less experienced investors.

[27:20] You can’t make accurate predictions in an era where government and central banks intervene.

[35:50] People want more control over their investments and rather invest in someone who they have a good relationship with.

[39:30] Ask the hard questions first before you invest.



There will be many problems in the world of crowd funding. Many lawsuits, many frauds. Get ready. They’re coming.

What’s great about real estate is it’s an imperfect market and that imperfection is what breeds opportunity.

When you do qualify these fund managers, you do have to look at their track record.




Mentioned In This Episode:


Making the Yield by Salvatore Buscemi



Will Robots Steal Your Job?

AMA5-5-15The Second Machine Age has arrived. Tech experts now predict that by 2025, robots will have reached the level of human intelligence – and they’re poised to claim at least a third of the jobs done by humans.

Economists and job seekers have been worrying about the steady encroaching of machines into the working world for some time. ATMs were blamed for eliminating bank tellers. Self-serve checkouts took the jobs of grocery and department store checkers. Automated assembly lines put low-paid workers out of a job.

Add to that the steadily expanding use of smart software that conducts surveillance, navigation, and a host of other small and large functions, and it seems those worries are pretty well founded. But those early efforts to automate various functions for human convenience were only the beginning.

Robots and other kinds of automated machinery were originally developed to do the kinds of tasks humans wouldn’t, couldn’t or shouldn’t do – what a recent article from Business Insider calls the “dirty, dangerous and dull” work tasks. But as artificial intelligence technology moves forward, that’s changed.

Robots now assist surgeons in the operating room and nurses on hospital floors. They deliver meals in high security prisons and conduct medical exams and broker purchases. They even routinely beat humans at a variety of games and logic challenges. From simple automated technology, these mechanical workers are truly becoming another kind of intelligence, and their emergence in the white-collar workplace is making jobholders – and seekers – nervous.

Whether they should be nervous is a matter of debate. In an economy that’s driven by “job creation,” it’s ironic that existing jobs could disappear thanks to automation. But some economists argue that the jobs that could be lost to robots and smart software are largely ones that aren’t needed anyway – outmoded and irrelevant in rapidly advancing fields.

While that may be small comfort to the workers losing those jobs, some market watchers predict that the Second Machine Age will actually create more jobs, at least in the sectors related to the care and feeding of robots and AIs: design, development and maintenance. But those jobs usually come with a steep learning curve and require skills that displaced workers just don’t have – which in turn leads to a greater demand for training.

This Second Machine Age threatens to do for intelligence what the First Machine Age did for physical strength and endurance. That was ushered in by the Industrial Revolution, which saw the creation of machines that could work harder, longer and faster than any human could. Workers did lose jobs in the aftermath of that revolution, as industrial and commercial machines outperformed them at a fraction of the cost.

The possibility of a repeat of that scenario is what worries some experts, while others envision a future straight out of many science fiction novels, where robots rule and humans have either been relegated to machine serving slaves or eliminated altogether.

But just as in the First Machine Age, there are things that even today’s smartest machines just can’t do. They’re very good at performing linear, structured tasks and making decisions based on mathematical constructs and logic. But, experts say, they fail at some very human skills.

Artificial intelligences don’t work well when it comes to making judgment calls, responding to unexpected changes in sequences, and human interactions involving emotions like empathy. Fort hose reasons, trend watchers say, these evolving artificial intelligences will always need human overseers and colleagues to carry out those more complex tasks.

In any case, say futurists, there’s no need to worry about the coming of the Second Machine Age. It’s already here, sneaking up on us in many small ways we’re already used to: smartphones, virtual reality technologies, and GPS. Those things have become a part of life in less than a decade – and the coming decade will see much faster advances.

The Second Machine Age ushers in a new, exciting and uncertain future, with profound implications for the world of work. Whether jobs will be lost or eventually gained, it promises to have as much impact as the advent of the steam engine did a couple of centuries ago. (Top image: Flickr/PaulKeller)

Read more from The American Monetary Association:

How Does the Fed Manage Inflation?

The Wizard of Oz: An Economic Fairy Tale?

The American Monetary Association Team

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How Does the Fed Manage Inflation?

AMA4-28-15Cycles of inflation and its opposite number deflation have been part of the American financial landscape for well over a century. While some of these cycles are affected by outside events such as wartime, what many consumers don’t know is that our very own central bank, the Federal Reserve, plays a very active role in creating the rates of inflation that push prices up and buying power down.

The Federal Reserve took on the job of managing inflation back in 1913, and the country’s money manager has been on the job ever since, with interventions and adjustments aimed at keeping the overall inflation rate hovering around two percent.

The Fed uses several models for evaluating inflation, such as the Consumer Price Index, which tracks the actual cost of buying a set amount of fixed price good, Personal Consumption Expenditures, and other models established by the Department of Labor and other bodies.

Why would the Fed want to maintain a two percent inflation rate – or any inflation rate, for that matter? In the positive inflation model, when prices are higher, wages are generally higher too, and that keeps the economy growing. The dollar buys less, but prices stay up and the economy avoids recession.

If that doesn’t happen, the country could face a period of deflation – the opposite of inflation, when wages fall and so do prices. That could set the stage for the dreaded deflationary spiral of cycle after cycle of dropping prices that eventually leads to full blown depression.

As the Federal Reserve sees it, a little inflation offers some security against the threat of a deflationary spiral. As long as a modest amount of inflation is in place, prices won’t fall far enough to damage the economy as a whole.

That magic two percent of “protective inflation” is set by the Fed’s Federal Open Market Committee, a board that has determined that that number is reasonably consistent with the Fed’s mandate to keep prices stable and boost employment.

To do that, the FOMC directly intervenes in the nation’s monetary policies both domestic and international. And those manipulations affect both national policy and average consumers trying to balance a budget.

The primary way the Fed adjusts inflation rates via the FOMC is through tweaks to the federal funds rate, or the rate banks charge other banks – not consumers – for short-term loans. Although those rates pertain to bank-to-bank transactions, movement on the federal funds rates is passed on to other short term lending structures.

Movement in those short term lending rates in turn affect long term interest rates for things like mortgages and business startups – and activity there boosts economic growth and keeps money moving via consumer activity.

When the Fed reduces the federal funds rate, it has a ripple effect that creates a stronger demand for goods and services. Prices go up, wages go up, and inflation prevails. Those conditions can affect consumer confidence and business growth too, in terms of willingness to invest, take out mortgages and other loans, and manage assets.

Times can get tough, and inflation levels can spike. That’s what happened in the twentieth century, when inflation soared after each of the two world wars, and deflation plunged the country into the Great Depression of the thirties. When economic conditions indicate a dive into recession and depression, the Fed can resort to what it calls “nontraditional” ways to manipulate the nation’s money supply.

That’s what happened after the massive housing collapse of 2008. In the years that followed the crash, the Fed embarked on a plan known as Quantitative Easing, which involves much more than adjusting federal funds rates.

Between 2008 and 2014, the Fed undertook three rounds of Quantitative Easing. The last and most ambitious of those involved buying up billions of dollars in longer term mortgage backed securities, government notes and Treasury bonds. The goal of QE3 was to stimulate the economy by pushing down bank interest rates for loans like mortgages so that more people would borrow and more money would circulate in the economy.

Because the Fed can initiate its “nontraditional” interventions whenever it chooses, it can also end them when the economy picks up, and that’s what happened in 2014, when the Fed decided that conditions had stabilized enough to begin tapering off its massive securities buyup plan.

The Fed’s role in adjusting inflating rates doesn’t stop on the domestic front. What happens at home also has implications for international currency trading and the value of the dollar. High inflation – or correspondingly, deflation – affects the movement of gods and services worldwide and the value of the dollar against other currencies.

Keeping prices relatively stable and wages up means making adjustments as needed to the nation’s bank rates and monetary policies. And for the Fed, a little inflation can be a very good thing. (Top image:Flickr/imagesofmoney)

Read more from The American Monetary Association:

Inflation Rate Models Make a Difference

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The American Monetary Association Team


Inflation Rate Models Make a Difference

AMA4-26-15Inflation is a word that strikes dread into the hearts of American consumers, who know that when it’s headed their way, their hard earned dollars will buy less. But different models of measuring inflation can make a big difference in how scary those numbers can be.

Inflation and its opposite number deflation have been around for a long time. The Bureau of Labor Statistics began compiling data from the Consumer Price Index back in 1913, and a new report from Business Insider tracks it even farther back – all the way to 1872.

Thpse figures reveal some dramatic swings in the purchasing power of a dollar over a century and more of reporting. That period covered two world wars and the Great Depression, which account for some of the extremes in inflation and deflation during the twentieth century.

The years of both World Wars saw a not surprising spike in inflation, followed by a period of deflation. And the Great Depression saw the deepest deflation of all. In between those historic events, the pendulum still swung from inflation to deflation, but on a much smaller scale.

In the 1970s and 1980s the country struggled with a new phenomenon – stagflation, characterized by both a stagnant economy and stubborn inflation. The years post-2000 show modest inflation, holding at a ten year moving rate of just 2.22 percent, which is just about at the 2 percent mark that the Federal Reserve considers “acceptable” to keep the economy humming along.

Overall, though, as Business Insider points out, all this accumulated data reveal that in the past half-century and more, the purchasing power of the dollar has steadily declined. Those numbers are based on inflation rates calculated by the Consumer Price Index, which determines inflation rates by tracking the amount of real money it takes to buy a fixed amount of tangible goods at any given point.

But those numbers aren’t absolute – and different models for determining inflation rates can yield up inflation rates that are either higher or lower, which affects both everyday consumers and policy makers who adjust economic and monetary policies based on those rates of inflation.

For the purposes of calculating the inflation rates that drive both public policy and consumer decisions, there are two types of inflation: headline inflation and core inflation. And the outlook on inflation can be either brighter or gloomier; depending on what model is used.

Headline inflation is the general model that consumers are aware of: the purchasing power of the dollar relative to a set amount of all goods and services consumed. That includes the prices of fixed commodities as well as those that fluctuate in price, such as food and energy.

Core inflation, on the other hand, reflects the rate of inflation for fixed commodities only, while excluding energy and food. For that reason, some financial experts and economists believe that calculating inflation rates in terms of core inflation is more accurate, since it reflects a fairly stable set of commodities.

Others beg to differ. Market watchers including regional Federal Reserve President James Bullard of St. Louis argue that failing to take into account those volatile goods offers skewed numbers to consumers and compromises the credibility of the Federal Reserve. Still others call for developing other models for calculating inflation that take into account such factors as the “relative price” of goods where spending more on one item means spending less on another.

Headline inflation calculations reflect the fact that energy and food make a significant dent in the budget of most consumers. But because the prices of those things can fluctuate wildly due to factors ranging from climate events to armed conflicts and even changing consumer preferences, core inflation numbers might give a more stable indication of trends in inflation.

The CPI and Bureau of Labor Statistics inflation calculations aren’t just for the benefit of consumers, though. Those trends are watched by the Federal Reserve and other policy makers who use them to make decisions about monetary policy and other kinds of legislation. That’s why s financial experts like Bullard and others are calling for closer examination of just how inflation is really calculated and what that means to everyday consumers and national policy decisions.

Whatever the calculation, inflationary cycles are a fact of financial life. And, in fact, a little inflation is often a good thing – witness the efforts by the world’s leading economies, including the US, to keep inflation within an optimum range, rather than trying to eliminate it.

But because there’s more than one kind of inflation, consumers and money managers of all kinds may want to take the CPI’s current calculations with a grain of that volatile commodity – salt. (Top image:Flickr/donbrown)

Read more from The American Monetary Association:

What’s Behind the World’s Debt Crisis?

The Wizard of Oz: An Economic Fairy Tale?

The American Monetary Association Team


What’s Behind the World’s Debt Crisis?

AMA4-24-15On one spring day in late April 2014, the world’s debt clock checked in at a staggering $60, 656, 668, 640,014. That number changes by the minute, as do the totals for interest accrued – over $1,000 every minute.

The world is deep in debt – and becoming more indebted every minute, with no end in sight. Many countries carry so much debt that it can never be paid off. But debt itself is a stock in trade in the world’s money markets, which creates winners and losers in the global debt game.

How did the world wind up in so much debt? And what are the implications of massive international indebtedness for the future of both the US and world economies? Economist John Rubino spoke with Jason Hartman about those things on a recent episode of the American Monetary Association podcast.

As Rubino points out, the world now runs on debt – a situation that’s been accelerating over the past forty years r so, since the end of the Gold Standard. And that creates some unprecedented situations, such as negative interest lending and investors paying for the privilege of stashing money in safe havens.

The gold standard, or lack thereof, plays a key role in today’s world debt situation. From the first days of using gold for currency back in 643 BC, this precious metal, along with its less distinguished cousin silver, has created the standard of wealth that defined the status of countries like Spain, Portugal and France throughout their history.

By the mid 1800s, the rise of printed paper money and ever expanding global trade initiatives led major world powers to adopt the Gold Standard – a system that tied the value of a country’s curr4ency to its store of gold. In other words, a given amount of paper money could be redeemed by its movement for the same value in gold.

That worked relatively well for a while. But as the price and availability of gold began to fluctuate, so did the currencies tied to it. IN 1933, the US created the Federal Reserve to oversee and regulate gold and currency issues. But when World War I began in 1914, several European countries suspended the Gold Standard in order to print up more money to subsidize their part in the military effort.

That created runaway inflation, so after the war, most countries returned to the Gold Standard – or a modified version of it. But when the Great Depression hit in 1929 many countries had to abandon the Gold Standard again. People were hoarding gold out of a deep mistrust of banks, and President Franklin Delano Roosevelt froze gold dealings completely. No one could export it, hoard it or sell it.

That made the US the largest holder of gold in the world. But as the economy became more robust after the two World Wars, more trade was conducted in dollars – now widely seen as a stable currency. And so in 1971, President Richard M. Nixon signed an act doing away with the Gold Standard for good.

That, say some economists, paved the way or the current debt crisis. With printed money no longer tied to a tangible commodity, countries were free to print as much money as they needed to cover commerce and loans outstanding to other countries.

The value of money became essentially whatever the issuing government claimed it to be. And without tangible assets to back it up, debt became largely am exercise on paper, with many countries falling so deeply in debt they may never escape it.

The looming specter of all that debt has investors and everyday citizens worried that a house of paper cards could collapse and take their assets with it. Thus the rise of tax havens, secure places in various parts of the world where investors could keep assets safe from financial uncertain ad devaluation at home.

But that too is changing. Even as “good borrowers” are being rewarded for their debt management by increasingly good rates that push interest rates into negative numbers, traditional safe havens like Switzerland are encouraging people to use their safe banking resources to protect assets.

Those days of safe tax havens may be ending, though. Recent legislation in the US and a globally focused counterpart in Europe threaten to end the privacy and relative safety of offshore tax havens by requiring host countries to report accountholders’ assets to their home country – effectively ending the financial privacy that attracted users in the first place.

All these factors contribute to making the word’s debt less manageable, not more. And as debt, inflation and financial mismanagement plunge some countries into financial crisis; so market watchers worry that there may be serious crisis ahead.

Is there? Rubino notes that there are really only two options: a collapse of the entire system, or a round of inflation not just for the US but the world as a whole. And with the world’s hopes for financial stability resting on the paper tiger of printed money, tangible assets such as property remains as good as gold. (Top image: Flickr/elibrown)

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The Wizard of Oz: An Economic Fairy Tale?

Do Currency Wars Drive World Economies?

The American Monetary Association Team


The Wizard of Oz: An Economic Fairy Tale?

AMA4-22-15And all along, you thought The Wizard of Oz was a delightful children’s adventure, brought to life on the big screen in that famous movie starring Judy Garland.

But in the years since the movie put the beloved L Frank Baum story into the cultural fabric of American life, a variety of scholars, historians and economists have found deeper meanings behind the adventures of Dorothy and her little dog Toto.

At least seven theories have been advanced about the “real” meaning of The Wizard of Oz. That’s the title of the 1936 movie; Baum’s novel was actually titled The Wonderful Wizard of Oz, but we’ll use the film’s title to keep things simple. Among the leading interpretations of Baum’s story: it’s a Christian allegory that has Dorothy following the Yellow Brick Road to get to the Emerald City (heaven); it’s an atheist allegory (there is no wizard, which means there is no god), a feminist allegory (Dorothy triumphs), and more.

But as a new Business Insider article reports, the one theory that still captures the imagination of some economists and financial experts was advanced by a high school teacher named Henry Littlefield. His reading of the book sees The Wizard of Oz as an allegory about American monetary policy of the time – with implications for what came later as a result of conflict over maintaining the gold standard and the “ Free Silver” movement of the day.

If you’re hazy on the story, it comes down to this: little Dorothy and her trusty dog Toto are transported into the magical world of Oz, where they join the Scarecrow, Cowardly Lion and Tim Man in their journey along the Yellow Brick Road to find the Emerald City. After a long series of adventures, Dorothy clicks together the heels of her silver shoes there times and is transported home.

According to Littlefield’s theory, many of the story’s characters do double duty as metaphors for figures in the landscape of the American economy of the day. And Dorothy’s journey represents one that could lead to prosperous outcomes for the country as a whole.

This reading of the story sees Dorothy as the common citizen struggling to make sense of the economic realities of the world of the early 1900s, when unemployment was rampant, drought was pinching farmers who were in debt to the banks, and the country was debating what direction to take its monetary policy.

Carrying the theory forward, the Scarecrow represented farmers, who were indebted to bankers. As deflation hit the country in the late 1900s, their debt ballooned while those bankers got more money. Dorothy’s other companions, the Tin Man and the Cowardly Lion, also represent figures of the day.

The Tim Man, economists say, represents the industrial workers, who faced soaring unemployment rates in the waning years of the nineteenth century. That’s suggested by the Tin Man’s rusty joints and creaky movements that keep him from being effective.

For Littlefield the Cowardly Lion was William Jennings Bryan, a proponent of the Free Silver movement to add silver to the gold standard to boost the money supply The Yellow Brick Road was the gold standard itself, which took the traveler to the Emerald City, Washington DC, where everything was seen as dollar green.

There Dorothy met the Wizard, who’s believed to be Grover Cleveland or possibly William McKinley – both presidents who were known for not doing much to help the economy. Once Dorothy met the Wizard, she clicked the heels of her silver shoes three times and was able to get safely home – demonstrating that adding silver to the country’s money supply would help the economy out of its tight spot.

And Oz itself? Why, its name is the same as the measurement of a unit of gold – the ounce.

Clearly, the producers pf the legendary movie weren’t concerned with keeping the allegory going, though. The silver shoes Dorothy wears in Baum’s book were replaced by the famous ruby slippers in the movie, just to take full advantage of the trendy new Technicolor film process.

The gold standard was once the bedrock of US monetary policy. Throughout the nineteenth century and much of the twentieth, gold was bought and sold at a fixed rate among participating countries, and the value of currencies were tied to the value of gold. Silver was part of that equation too, in a system known as bimetallism. The Gold Standard Act was passed in 1900, the year that Baum’s book came out, so that lends some support to the “economic” theory about the message hidden in his book.

The gold standard effectively ended in 1971, when US President Richard M. Nixon severed the connection between a country’s currency and real commodities such as precious metals.

Literature is always open to  interpretation, and who can say what L Fran Baum really intended to say in his novel? But although literary scholars have largely dismissed Littlefield’s interpretation of the book, the parallels are striking – and the discussion serves as a history lesson for followers of American monetary policy. (Top image: Flickr/Photatelier)

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Do Currency Wars Drive World Economies?

The US: World’s #1 Tax Haven?

The American Monetary Association Team


Do Currency Wars Drive World Economies?

AMA4-17-15The major powers may rattle sabers and troops and weapons may move in places all around the globe, but there’s another, quieter kind of war that has the power to make or break economies. Global “currency wars” like the one we’re In right now affect rates of exchange, inflation, and the flow of goods and services everywhere in the world.

Currency wars come around periodically in the interconnected world of global finance, where what one country decides to do with its currency affects the monetary policy of another one thousands of miles away.

The current currency war has been going on for a few years now according to some financial and economic experts, who place its start somewhere in 2010. It made headlines in early 2015 when Switzerland abruptly decided to abandon its longstanding cap on the valuation of its franc.

Without the Swiss National Bank’s firm limits on the franc, it could float freely relative to other currencies, particularly the euro. The SNB’s decision came as the Eurozone was planning to launch a round of quantitative easing for the euro – putting more euros into circulation in order to stimulate spending.

The Swiss move caused economic upheaval at home and in neighboring countries holding franc-denominated debt. The rush was on to buy up more currency to back the debt, and the fallout rippled as far as the United States, with losses by major banks with heavy involvement in international currency trading.

Although the duel of the franc and euro made financial headlines and put the concept of currency wars into the public arena, currency wars have a long history. As a new article from Business Insider reports, there have been three of them in the last century or so alone. And they’ve changed the way the world does business every time.

What is a currency war anyway? Basically, it’s a race among nations to cheapen currency –just as price war among retailers is won by the one who can cut prices the lowest and still make money. In the world of monetary policy, cheapening currency can boost exports and keep those exports more competitive internti0onlaly.

A strong currency – like the dollar, let’s say – actually makes international commerce tougher, since an item costs buyers from places with weaker currencies more to make the purchase. While these cheaper currencies may encourage trade, they can also raise the prices of goods and services at home, providing fuel for a round of inflation and increased prices for everyday goods.

In the twentieth century, currency wars have lasted anywhere from five to fifteen years, with varying effects. The first of these came in 1921, when Germany completely devalued its currency in the aftermath of World War 1. Within a few years, France and Belgium had followed suit.

That launched a series of currency wars leading up to the present one, driven largely by the shift away from the gold standard that began in 1914 when the whole world went to war. Before World War I, the balance between gold and paper money remained steady. But in the war years, more money was needed – and that shifted the balance between gold and paper money.

That started the pattern of systematically devaluing currency during certain economic conditions. Successive currency devaluations by the world’s great powers in the periods between the two World Wars led to severe depressions and currency crises. The next currency war came in 1967 and lasted twenty years and spawned three major recessions.

The latest currency war began in 2010 and, as the Swiss demonstrated in their actions regarding the franc, it’s still going on. And if past currency wars are any indication, this one will likely last awhile. Thanks to a strong dollar and the disintegration of the old gold standard, the coming years promise uncertainty and constant change.

Currency wars aren’t won with guns and tanks, but with banknotes and policies. And for wise investors hoping to protect assets, the current skirmishes are worth watching.  (Top image:flickr/rieh)

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The American Monetary Association Team

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Does Housing Drive Income Inequality?

AMA4-13-15The widening gap between the wealthy and – well, everyone else in America has occupied news headlines since the housing collapse of a few years ago. As the famous one percent gets richer and the other 99 do not, a new theory suggests that income inequality is really about housing inequality.

Income inequality isn’t new. It’s even become a part of the classic “American dream” in which a poor but enterprising individual can overcome a lack of money, rise above humble origins and get rich. But changing economic and cultural conditions have revealed that dream for what it always was – a fairytale.

In today’s world, technology, globalization and economic crises have combined to make it harder for the poor to get out of poverty and for the rapidly eroding middle class to hold the line. And while that’s going on, that small minority of the wealthy keeps on accumulating wealth.

According to a recent report from, an MIT student’s current work suggests that this model points economists in the wrong direction. Under current conditions, those models for accumulating wealth through labor and wages may be less valid – and the real reason behind American’s stubborn income inequality has to do with housing prices and availability.

That’s the theory proposed by MIT graduate student Matthew Rognlie, who points out in recent research that in the tug of war between capital income and labor, or wage, income, capital income prevails as the route to accumulating wealth – if the equation includes housing.

As French economist Thomas Piketty proposed, wealth accumulates with one percent of the population because they’re investing in capital, not in wages. In other words, money accrues to those who invest capital in assets, including land, technology and innovations, rather than paying workers wages. The labor income model ties income inequality to factors such as stagnant wages, a sluggish job market and related factors that keep people from being able to accumulate capital and make investments that could open the door to building wealth.

But one of the most stable and enduring assets in the US and the world is housing: land and the structures that are added to it. Because people always need a place to live, land and hosing never goes out of fashion.

That’s not the case with technology and product innovations, which become obsolete quickly as new generations become available. And today’s innovation may be old hat tomorrow – or eclipsed by anther more cutting edge product from elsewhere in the world. That means that today’s technology giants may find the foundation for their wealth eroding with tomorrow’s innovations.

Likewise, in manufacturing an industry changing conditions may mean that today’s operations can’t be sustained at their current levels – and that the investment into infrastructure and personnel doesn’t yield up enough returns.

If those avenues for building wealth don’t have the staying power that they used to, housing does. It’s the common denominator for virtually everyone – and what happens with hosing is highly revealing about how wealth is distributed – and what that means for the future.

The availability and cost of housing creates clear barriers between income groups. As the US housing market climbs out of the rubble of the 2008 crash, home pries are continuing to rise, even as the inventory of homes available for sale continues to be tight in most markets.

That means that home buying becomes a reality largely for those with higher incomes and the ability to either pay cash or make large down payments on higher priced properties. That locks out lower income buyers, who can’t find properties to buy in their price range and who struggle with meeting mortgage standards and making down payments.

The lack of affordable housing in mid and low income markets, along with stagnant wages and an unpredictable job market, makes homeownership a matter of “haves” with higher income on the one side, and “have nots” on the other. And with fewer homes for purchase and fewer people able to buy those homes, rental markets heat up.

But even in the world of rental housing, demand drives up prices. And once again, higher rents and tight availability mean more access to those with higher incomes. And because of perennial demand for housing, investing in real estate becomes a route to building wealth.

Closing the income gap is always high on the list of ways to address inequality in American life. But a graduate students insights may point the way to doing just that – through the one asset that never stops being in demand. (Top image: Flickr/milestonemanagement)

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The American Monetary Association Team