I found another great book at a thrift shop called “The New Good Life” by John Robbins. He wrote a book that we read a few decades ago called “Diet for a New America” which got us thinking about the food we eat. He was heir to the Baskin Robbins’ ice cream empire and walked away from it all, lived in a cabin on the coast of B.C., grew his own food and lived on next to no money. Eventually he moved to California and wrote some books and earned a reasonable living promoting living a sustainable life.
He has two grand children with health challenges because they were born prematurely and he was concerned about having money put aside for their care. He was doing well with an investment adviser he trusted, so he took a mortgage on his house to increase the nest egg he was building.
In early January PBS’ “FRONTLINE” re-aired a broadcast about the ponzi scheme of Bernie Madoff. And low and behold, I happened to watch the show on the same day that I read the section in John Robbins’ book where he talks about the call he got from his investment adviser that the reason they had been getting such good returns was because their money was invested, indirectly and through various layers of fog, with Bernie Madoff. So John was broke, had a mortgage, no source of income and wasn’t getting any younger.
Here’s the Frontline documentary which you can watch online.
This is a heart-wrenching story, for everyone who got scammed. There’s no way to not sound like a cold heartless monster when I say this, but I will anyway. If something sounds too good to be true, it probably is. If the best you can do in a GIC is 2% and the best you might do in the market is 5 – 7%, and someone is offering you 12% or whatever it was, year after year, whether the market was up or down, run screaming.
Which leads me to the news that European Union central banker Mario Draghi has decided to start a massive round of quantitative easing of $86 billion a month. Quantitative easy is the fancy-schmancy word for money printing. The U.S. Federal reserve starting calling it this around 2008, thinking we wouldn’t know it was money printing. They printed oh, about $85 billion a month. Doesn’t it seem kind of strange that central bankers keep using an arbitrary, random amount that doesn’t seem to have any grounding in anything real? But then again, it’s just made up money, so really, who cares about the amount?
I took several economics courses at university, and never finished my degree, so I am not in line to take over control of the Bank of Canada. But here’s how I perceive the money supply. It should have some basis in reality. It should be linked somehow to the general productivity of the economy. Otherwise just throwing $85 billion a month out of a helicopter is going to be hugely inflationary. With interest rates at historic lows over the last 5 years one wonders what people did with all the extra money, being dropped from helicopters. In October 2007 the DOW was at 13,900. In February 2009, just as quantitative easy was starting it was at 7,000. The day I wrote this blog post it was at an all time high of 17,800.
Some would argue that this figure has little grounding in the actual performance of the U.S. economy. Don’t get me wrong, for all those people who have retirement plans based on this amount, it’s a good thing. But if it has been achieved artificially, well, then, one shouldn’t have much confidence in its long-term viability. In fact I’d have way more confidence in the stock market if it actually had some logical link to the state of the world economies after the economic collapse of 2008.
It somehow seems “too good to be true.” It’s funny, I just checked to make sure that you could watch that Frontline on-line and you can. And the first line is “It was too good to be true.” But nobody wanted to ask questions.” There was a ‘willful ignorance.’ ‘Where was the due diligence?’ ‘Where were the regulators?’
So today you have to ask yourself, is the state of the stock market a realistic representation of the true state of the economy, or is it the logical result of years of money printing, err … quantitative easing, where this magical money was created at a time of historic low interest rates where it had no place else to go. And if you think there’s a link, then you have to ask yourself, is it ‘too good to be true?”
If you do think that, then you should be taking proactive measures in your financial management and your personal resilience.
Michelle and I have been busy getting our latest book “The Sensible Prepper, Practical Tips for Emergency Preparedness and Building Resilience” ready for printing. We think it’s an important book that our readers may be interested in. We think there may never be a better time to take action than now, when things look pretty good.
It’s easy to say ‘well, that whole Bernie Madoff thing, that would never happen to me.’ Unless of course it was happening on a much grander scale, so grand it wasn’t apparent to everyone participating in it that in fact there was a lack of due diligence and there was a willful ignorance, and that the government means well, they just want the shiny happy endless economic growth train to keep rolling along forever. Even if the way they achieve this may be, well, not exactly an honest, hard-working way of doing it.
In the meantime, woo hoo, let’s all party like it’s 1999! Don’t worry, be happy! It’s allllll good! Until it’s not.
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Michelle’s Note: Two book reviews in a row! Here is the amazon link for both of John Robbins’ books mentioned by Cam.