Tuesday, December 15, 2009

Is Buy and Hold Dead?

Copyright 2009. By Paul Mladjenovic

In today’s turbulent, volatile, roller-coaster market, is the age-old adage about “Buy and Hold” bad advice? In recent months I have heard or read comments such as…

“The “Buy and hold strategy” is an archaic idea and would be financial suicide in today’s market.”

“People are better off with short-term strategies so that they can try to buy before the market goes up and sell before the market goes down. Then…when the market goes down, that is a buying opportunity. Use the volatility in your strategies”

“The “Buy and Hold Strategy” was fine a long time ago when markets were different. It is not a good strategy for today’s roller-coaster markets”

I am sure that you have read or heard similar remarks. Certainly, as you have read my essays you would know that I have written much about the “sea change” in recent years for our economy and the financial markets. There are many strategies that were fine years ago but would indeed be dangerous today.

But does a “sea change” mean that fairly reliable strategies are in danger of becoming obsolete? It certainly depends on the strategy and it definitely depends on who you are, what your financial profile is, what you are trying to accomplish and what type of assets you are investing in. Let’s take a look at “Buy and hold”.

I am sure that if you “buy and hold” bad investments then you will eventually be in trouble. However, if you “buy and hold” good investments, it would be a different story. We all know that the decade of 2000-2009 had lots of wild rides and the market had many nail-biting moments, but how did the “buy and hold” strategy do?

How did “buy and hold” as a strategy fair for different assets since the beginning of the decade?

Asset class January 2000 Recent price Gain/Loss
(high price) (Nov. 30, 2009) After 9 ½ years…)

The “Dow” (DJIA) 11,722 10,345 DOWN 12%

Nasdaq Composite 4,235 2,145 DOWN 49%

S&P 500 1,465 1,096 DOWN 25%

The value of the dollar 99.87 85.64 DOWN 14%
(based on dollar index)

Oil 21 71 UP 238%

Gold 288 1180 UP 310%

Silver 5 18 UP 260%


As you can see from the above table, “Buy and Hold” was dumb for some things and very smart for others. There was nothing wrong with the strategy…it depended on the particular investment vehicle.

Very recently, I was asked how I did during the recent market mayhem. I answered quite honestly that a batch of my favorite stocks and ETFs were hit very hard during late 2008-early 2009. Some of the positions were down a bone-jarring 50-70%. Did it bother me? Sure…why wouldn’t it? But these were quality securities that were intended as long-term core holdings and not capricious vehicles to jump in and out of. “Buy and Hold” means that you “measure twice, cut once”. Those stocks and ETFs were bought early in the decade and they are almost all up by triple-digit percentages…Yes!…in spite of the chaos of 2008-2009.

“Buy and Hold” as a strategy is fine. It has served me and many other patient investors well. It is still an important feature of patient, successful, long-term investing. The point is to understand that particular investment and what are the economy, financial & political mega-trends that unfold over a long period of time. Good investments will zig-zag upward over the long term while bad investments will zig-zag downward during the same time frame.

If you would like a good course on how to invest, you can check out my national seminar entitled “The $50 Wealth-Builder” at www.ProsperityNetwork.net (see Bronze package). I cover stocks, mutual funds, ETFs, precious metals and real estate.

What mega-trends do I see coming? For the coming years, I expect the commodities bull market to continue and I tell my students that investments tied to “human need” will excel. To learn how to invest in today’s economy, the audio financial seminar mentioned above will provide you with the guidance you will need. In spite of the recent stock market rally, I believe that my twin-forecast will come to pass in the next few years; We will see both rising inflation and a depressed economy unless they radically change course in Washington (Don’t hold your breath!).

Paul Mladjenovic, CFP is the instructor of the national financial seminar “The $50 Wealth-Builder” and the author of “Stock Investing for Dummies” and “Precious Metals Investing for Dummies. His website is www.ProsperityNetwork.net.

Thursday, December 10, 2009

How Government hurts Job Creation

From a prior post, I discussed how jobs are created. To summarize, here is a quick list...

1. Someone starts a business (the entrepreneur)
2. He/She struggles to get it established and grow it.
3. If the enterprise succeeds and does indeed grow, he/she hires someone
to help with running and managing the enterprise.
4. As the enterprise grows, more help is needed to run it so the business owner hires more people.

In a nutshell, that is how it works. So it is important to remember that business start-up is the "seed" while products, services and...yes!...JOBS are the "fruit".

Therefore, our society (especially the government) needs to encourage business development and make it as easy as possible for business to flourish. In addition, we need to make it easy for businesses to hire. However, this is not reality.

government makes it very difficult for a business to flourish and to hire more employees. Think for a moment, what it takes a business to hire even a single person.

Make believe that you are a businessperson. Here is what you should expect:

1. You must be aware of federal labor laws that are voluminous and constantly changing. This includes (but is not limited to) federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

2. You must be aware of state labor laws that are voluminous and constantly changing. This includes (but is not limited to) state federal immigration statutes,diversity mandates, special rules for hiring women, minorities, etc.

3. Federal minimum wage laws must be complied with even if you think that the market value of the labor provided is not worth it.

4. Most states also have separate minimum wage laws that must be complied with.

5. You must file monthly/quarterly/annual payroll reports for federal & state agencies. Penalties for filing late or erroneously may apply.

6. The government mandates that you meet (where necessary) rules, reporting and fees related to workmen's compensation issues and insurance.

7. There are federal mandated payroll taxes that must be paid by the employer.
Example: The employer must pay his/her share of the FICA and Medicare payroll taxes which amounts to 7.65% on top of and in addition to any wages paid. Don't forget the state!

8. For some job categories, government mandates that your business must provide and or pay for certain conditions and special services depending on the employee and job function.

9. You must seek or have (pay for) legal services just in case your employee decides to sue you for anything that falls short of expectations and other potential issues related to health, disability, bias, workload, lack of recognition, unfair compensation, etc.

10. If your employee decides to take "family leave" you will have to pay them directly for non-work during a period that could exceed 12 weeks or indirectly to a temporary worker to cover job duties in the absence of the worker.

11. If you decide to fire that employee, the burden falls on you to prove your case. Depending on the reason and or the state or industry this includes (but is not limited to) properly filing the paperwork, providing substantiation for your case, expensive legal assistance to help you process the termination.

I remind you...THIS IS A PARTIAL LIST.

We can't ask small business to hire more folks and then make it much more difficult to justify doing so.

All of us need to understand that "wages" paid to a worker is not the same as the "cost" (and risk) of hiring and keeping that worker.

When you add up all the costs (direct and indirect) of hiring someone, it can easily be 40% higher than the wages or salary that the worker sees.


Please share these thoughts with others...especially if you want to see more jobs in America...not less.

Paul Mladjenovic

P.S. This is a major reason why I think that everyone should start their own home-based business as a solo entrepreneur. Part-time or full-time, it should be part of your money-earning strategies. Learn more starting a home business (click here).

Wednesday, December 2, 2009

How to Create a Real Job...

Recent times have shown us the worst job market since the Great Depression. Right now, politicians, economists and other public commentators are discussing and debating the question...

"How do we create jobs?"

The odd thing is that the leading decision makers in Washington have NEVER personally created a job. That's right...the top economic decision makers in the Obama administration and the congressional leadership have NEVER run a business or have ever met a payroll. That is incredible to me. We have people trying to make policy that allegedly would lead to "job creation" that are basically clueless about how a real job is actually created. That has got to make your jaw drop.

That would be like getting a bunch of bureaucrats together to figure out the rules for brain surgery (well...that's not really so far-fetched since that is happening right now in the healthcare debate but that's a different topic). Anyway...

I think that it is important for us to realize how a job is actually made. And I mean a "private job". You have heard a lot about "government jobs" and how the government is expanding lately and "adding jobs" as they expand government agencies.

Please don't confuse "government jobs" with "real jobs" as there is a crucial difference. Also if a reader of this post works for the government please do not take offense as you need to know the difference as well.

Important point:


If a government agency "hires" a person and then pays that person..say...$50,000, it must first take by force $50,000 from the private economy. Doing so then removes the money necessary to create a job in the private economy. The more the government grows, the more resources it takes...by FORCE...from the private economy wheich subsequently deprives the private economy from using those resources more productively as a private job.

Remember that a private job is involved in the production of goods and services. From this, taxes are paid to fund the government's activities. In this sense we can see that government jobs are basically funded by private jobs.

Some may point out that some government jobs are not funded by taxes but instead are funded by government borrowing. This does not change the dynamic; it may only change the timing. Jobs created by government debt today must be ultimately paid for by destroying future private jobs.

A healthy economy needs private job creation if it is to grow and ultimately pay for current and future goods and services and for government activity (which of course includes government jobs).

The bottom line is that private job growth is vital for both the private and the public sector. This leads us to the main question..."How do we create a real job?"

Keep in mind that real jobs are created as a by-product of business formation, growth and expansion. This is why entrepreneurs and business start-ups are an EXTREMELY important part of the job creation process. Entrepreneurs are the "seeds" while jobs are the "fruits".

If we really want to get our economy back on a healthy growth track, we MUST encourage business start-up, business formation and business expansion. We must embrace and enact policies that ignite and encourage entrepreneurial activities.
That includes low taxes, sensible regulations and making it as easy as possible for anyone and everyone to turn their talents, skills and efforts into a new business.

I have taught thousands of people on how to start a home business in a seminar that I have done for over two decades and I am also a full-time entrepreneur as well so I practice what I preach. I even tell those that already have a job to do a business part-time from home. All of us have hobbies, talents, skills, experience and expertise...why not convert this is into a business in your spare time?
Right now, starting a home business should be considered an economic necessity. After all, the first "job" that gets created is that of the entrepreneur.

For more information about my home business seminar, go to www.SuperMoneyLinks.com or click here. For 2010, don't just wait for prosperity...make it happen.

Wednesday, November 25, 2009

You Struggle...They Splurge

According to a recent news item, the federal budget (under the first year of the Obama administration and the new Congress) will hit $3.52 trillion. It will be the largest single year federal budget ever. The federal deficit for 2009 surpassed $1.4 trillion; this is the largest deficit ever. Deficits exceeding $1 trillion per year are expected for years to come.

The spending in Washington by the executive and legislative branches have been extraordinarily and horrendously extravagant. Meanwhile...

Our country is experiencing record unemployment. The private economy is struggling with unprecedented financial difficulties, mortgage defaults, overindebtedness and soaring bankruptcies.

The government is saddling our economy with trillion-dollar spending while taxes and regulations are rising at all levels of government which will only increase the burden on the private economy.

At what point will the public scream "ENOUGH!"?

Monday, October 12, 2009

Part II: Deflation or Inflation? Here is the Answer…

By Paul Mladjenovic
Copyright 2009. Paul Mladjenovic. All rights reserved.

Picking up from Part I of this “two part mini-series”, we are covering the inflation/deflation debate. There are tons of top-notch economic commentators on both side of the debate. As we mentioned, the debate centers on the visible sign of deflation vs. inflation…”prices”.

In part one, we highlighted what I think is an important summary of what affects “prices”:

1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)

Demand and supply are an important factor in this debate and I believe that this becomes a source of misunderstanding. Inflationists talk about the money supply exploding and that this massive increase will (sooner or later) mean higher prices and even to the point of hyperinflation. The deflationists tell us that we are (and will continue to be) in a powerful deflationary environment. What gives?

Demand and supply complete the observation. Look…if a trillion dollars is printed right now but this money is not flowing toward anything (“demand”) then you probably won’t see a price increase. Demand has decreased for some goods, some services and some assets in recent years. However, demand has increased (or has had continued strength) in other goods, services and assets. In other words, BOTH of the inflationists and deflationists can be correct if you break down the picture. You can have inflation in one part of the economic picture but not another. You can have demand and supply bring prices down in one part of the economy and not another.

Demand, for example, has been dropping like a rock in real estate. The real estate bubble of 2000-2006 artificially stimulated supply which increased the national inventory of available property (both residential and commercial) to the highest level in history. Too much supply with falling demand obviously means falling real estate prices. No amount of created money supply was able to overcome this.

The same is true for the labor markets. Labor is priced higher than the market could realistically pay for. We forget that the price of labor is more than just “the gross pay”; it also includes many other costs such as payroll taxes, workmen’s comp, etc. The high cost of labor dampened the demand for labor; especially when demand for products and services fell. Right now, the supply of labor is much higher relative to the demand for labor.

In turn, as there are more and more unemployed, that means that less money is then available for discretionary purposes such as vacations and new cars. You get the picture.

Keep in mind that there is a big difference between “deflationary” and “deflation”. It is much like the difference between “fainting” and “dropping dead”. Lower demand does have a “deflationary” effect. If less people want something then of course the price will likely drop and this can happen even if the government’s central bank keeps expanding the money supply. What does all of this then mean for us as investors and traders?

It is actually simple to figure out what to do with your money given this historic debate:


I tell my readers and students to consider putting their money (retirement or otherwise) into those things tied to “HUMAN NEED”. If you have your money in those things that will benefit from BOTH inflation AND where demand and supply are strong, then this merits your attention.

Stay away from where there is a deflationary impact (such as real estate…unless you really need to buy a home). Go where the money is migrating. Given this, I like gold, silver, grains, energy and other commodities. Investors and traders should consider “human need” and view it as a mega-trend during the coming months and years. I believe that a commodities super-boom is a likely event (and is already unfolding).
I am on record as predicting an “inflationary depression” but to be more precise, we will see inflation in those things tied to “human need”. No matter how good or bad the economy will be, people will still need to eat, drink, heat their homes, etc. For these reasons (and other ones), I like commodities for the long haul.

For those deflationists that believe inflation is not possible when there are bad economic conditions, I say think again. Most hyperinflations in history happened during bad economic times. Germany (1920s), Yugoslavia (1989-1994) and Zimbabwe (2007-present) are good examples. Yes…inflation and a depression can happen simultaneously. Plan accordingly…

Monday, October 5, 2009

Part I: Deflation or Inflation? Here is the Answer…

By Paul Mladjenovic
Copyright 2009. Paul Mladjenovic. All rights reserved.

The debate over deflation/inflation continues as some of our most astute economic observers take sides. It is interesting for me to see some great commentators take opposing positions on one of the most important topics of our time. Frankly, I think that both sides are missing part of the picture. The debate concentrates on the after shocks of inflation/deflation: prices.

“Prices” are the visible barometer that both sides of the debate gauge. The inflationists see (or warn about) “rising prices”. The deflationists see (or warn about) “falling prices”. There are very convincing cases by both sides.

In “real time” October 2009, the deflationists seem to have the upper hand. They point out that we have a “deflationary economic environment” due a variety of factors that are contributing to falling prices (such as deleveraging and unemployment). Inflationists see the current stage being set for future rising prices due to factors such as expanding money supply and a weakening dollar. What is the real deal?

First, let’s set the record straight on the terms…

Inflation: Is the condition where more money (such as a paper currency) is created by the issuing authority (the government’s central bank) and this growing supply of money is chasing a fixed basket of goods and services (and/or assets). Inflating the money supply (“monetary inflation”) is the problem and the symptom is usually rising prices (“price inflation”). Inflation is not the price of things going up…it is the price (or value) of money going down.

Deflation: Generally the opposite…The money supply is stable or shrinking relative to the supply of stuff we
buy and subsequently there is less money chasing goods and services. In this case, the “value” of money usually increases.

Therefore, for prices to rise there needs to be more (and growing) money supplied to the market relative to what is being bought. Two things need to happen for prices to rise from an inflationary perspective:

1. More money needs to be created.
2. This money needs to “chase” what is being purchased (Think “circulation” or “velocity”).

This is a crucial point. Prices won’t go up just because the money supply expands; the money has to be actively “chasing” those goods or services (or assets) for the prices to see upward movement. For prices to go up (“price inflation”), you need monetary inflation (increasing the money supply) and velocity (the money is chasing goods, services and/or assets).

In recent years, the money supply has indeed expanded dramatically…but…relatively little “chasing” has been going on. If the Federal Reserve instantly created $10 trillion dollars and gave it to you, that is definitely monetary inflation but…if you merely put it in your sock drawer and hoard it, then it would not circulate (chase stuff) and therefore you wouldn’t see “price inflation”.

This is where part of the confusion and controversy is. Inflationists point out that money supply is growing dramatically and they are correct. Deflationists point to falling prices in many areas of the economy and they are also correct. Here is what we should be aware of…

1. THE MONEY SUPPLY (primarily enacted by government)
2. DEMAND AND SUPPLY (primarily enacted by the marketplace)

Understanding the money supply (its growth or shrinkage) coupled with understanding “demand and supply” will give you a better picture of the economy. This, in turn, will make you a better analyst, money manager or investor. More on this in Part II.

How about gold and silver? How do precious metals figure in this inflation/deflation debate? The bottom line is that precious metals should be considered in a balanced, diversified wealth-building strategy regardless of which side of the debate is proven correct. Paper currencies can be produced at will but precious metals can not. Therefore, any investor or money manager interested in diversification and safety should consider precious metals (more about this in Part II).

Thursday, September 24, 2009

Advice 2009: Financial Planners vs. Economists – Part II

By Paul Mladjenovic. September 24, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.

In the prior segment (part I) of this “mini-series”, I highlight the differences between the advice from financial planners and the opposing “advice” given by some so-called “economists” (predominately from the Keynesian school of economics). As a brief recap of the prior essay, I point out two divergent points of view:

Advice by Financial Planners to individuals: “Do not spend more than you take in”

Advice to nation from Keynesian economists: “Spend and borrow! Deficits are OK”

I find that an interesting (and disturbing) dichotomy. What are individuals but parts of the whole (nation). Why is financial responsibility good advice for the parts but not for the whole? Why are “financial deficits” bad for individuals yet good for the entire nation (read that “government”)? What’s good for all the “parts” is indeed good for the “whole”. Anyway, let’s move on to the second financial concept:


As I have taught in my financial seminars for years (www.ProsperityNetwork.net), you should save (where possible) a portion of your income (inflow) and put that sum somewhere safe and accessible. Keep in mind that “saving” and “investing” are two distinctly different activities so do not confuse them.

In good times, people should have at least two months worth of gross living expenses in a savings account. It can be a FDIC-insured bank account or a secure money market fund. In bad or uncertain times, that amount ought to be as high as six months worth.

Of course, financial planners may differ as to how much and that’s fine. The main point is that the overwhelming majority of financial planners recommend that you should have savings in your over-all financial picture (along with investments). Savings act as a “rainy day” fund or an “emergency” fund. You should always have money to fall back on when unexpected expenses arise or when you have events such as losing your primary source of income. Doesn’t it make obvious sense? Not to some economists…

It is maddening to hear or read some highly visible “economist” telling some congressional committee or Radio/TV audience that “America needs to stimulate demand…we need to spend more to get the economy moving”. More times than not, their next point is “If consumers are not spending then the government should be doing more spending to stimulate the economy”. Of course, spending, debt and government deficits are the “three stooges” of national finance!

Although Americans lately are saving more, they still need to increase their savings. After years of over-spending, America’s over-indebted consumers are finally learning the virtue of saving money and this should be applauded. They should ignore the calls to “keep spending and spending”. The politicians and bureaucrats should ignore these (primarily) Keynesian economists that are issuing this claptrap. They should understand that expanding savings leads to capital formation which in turn helps true economic recovery.

Unfortunately (and tragically), it is an ingrained feature of politicians and bureaucrats to spend and spend and spend and to keep dissipating America’s resources. While Americans are (correctly) being more frugal, our government (federal, state and local) are spending at alarmingly high (record) levels. The government’s massive debt and mind-boggling trillion-dollar will hurt us very badly. We need to prepare our finances (such as at www.ProsperityNetwork.net) for the greater debacles that are yet to come because our irresponsible government is listening to the advice of alleged “economists” instead of financial wisdom that has served us for centuries.


Friday, September 18, 2009

Advice 2009: Financial Planners vs. Economists – Part I

By Paul Mladjenovic. September 18, 2009.
Copyright 2009. Paul Mladjenovic. All rights reserved.

I first got my Certified Financial Planner (CFP ®) practitioner designation in 1985 and I first started consulting on financial planning issues in a part-time (now full-time) business in March 1981. Since then, I have had the opportunity to watch major changes and trends unfold in financial planning and investing the economy for what is now over 28 years.

Of course, much of this change occurs as responses to changes in the general society as we are affected by economic, financial, political and social trends both big and small. Some ideas have not changed. Think about the following idea:


Isn’t that a simple yet obvious financial idea? It spans 2,000+ years of human experience! What sane person would disagree with that? If you have income (or cash inflow) of $X amount per month then it is an obviously good idea to make sure your expenses (or cash outflow) is equal to or (hopefully) less than $X. Is this not a timeless and obvious piece of financial wisdom that anyone would acknowledge and agree with without hesitation?

Granted, it is not always easy. Sometimes unexpected financial events occur such as a major illness or the loss of a job. That is understandable. However, we strive to have inflow exceed outflow as a desirable and achievable goal. After all, if we spend more than we take in then the shortfall must be covered in some way. This is why we need savings. In recent years, we covered that shortfall differently.

The usual way to cover that shortfall is DEBT.

As the debt grows, the financial balance of “income meeting or exceeding expenses” gets screwed up and we get into financial difficulty. That, of course, can result in economic pain and bankruptcy. It doesn’t take a “financial expert” to see or understand this.

But… is there anyone out there that would purposely disagree with this idea? I mean, is there anyone out there that would intentionally decide that over-spending is a worthy idea? Who would knowingly contradict ancient wisdom and say “I disagree…we should spend more than we take in! Getting into greater debt is a good idea!” As a CFP practitioner, I would obviously reject such a bad idea. Who would say such a thing?!

Enter stage left…a mainstream “economist”.

Now, I won’t mention names here (I am tempted). I am not here to mock a person…I am here to criticize a stupid and dangerous economic idea. I want you to recognize economic stupidity when you hear or read it. Lately, I have read such an idea as espoused by several very prominent “economists” (I put that in quotes because I have a tough time believing a REAL economist would say such things and actually mean it).

Now keep in mind that these “economists” are not giving this dumb advice to a particular private citizen or organization (I hope not!). They are giving this unsolicited “advice” to us collectively as a nation (through the government and the media). These particular “economists” are adherents to the general economic ideas of John Maynard Keynes. “Keynesian Economics” has as a central idea that government should spend and spend and balloon its debt to help “stimulate” the economy. The goal is to get it out of its doldrums and “back on track”. This is quackery.

It doesn’t occur to these “economists” that such an event simply postpones today’s difficulties and ultimately creates greater difficulties later on. Government debt is a forced burden on society and the politicians and bureaucrats merely take a big financial problem today and make it a bigger financial problem tomorrow. The government’s massive trillion-dollar spending binge will cost us dearly!

In my financial & investing seminars (www.ProsperityNetwork.net), I talk to my students about how to manage their money in today’s troubling economy given the economic quackery that we are forced to deal with. Greater economic difficulties are on the way and we need to prepare ourselves. We have to stay a step ahead. Financial changes are here and we need to prepare! Financial security will not be easy.

Hopefully, America’s personal financial planners will help our populace individually offset the great harm that is being done to them collectively as a nation. The irony is very disturbing to me: Our troubling economic conditions have arisen chiefly due to bad advice given to our nation from eloquent quacks that the media presents as “prominent economists”. More on this in a future essay.

Tuesday, August 11, 2009

The Arrogance of Government Spending

If you ever want to see a troubling dichotomy in our economy, look no further than the spending behavior between the private and public sectors. Right now, the private sector is now immersed in "thrift". The topics of consumerism and personal finance are now top-heavy with information and news about "how to save money". More and more folks are turning to frugality and trying to find ways to cut costs and reduce expenses. The major exception is government. Government spending at almost all levels are still too high. The federal government is the worst with trillion-dollar spending gone wild. Even beyond policies that affect all of us, our political leaders are spending more on themselves personally than ever before. I immediately think of an example:

During late 2008, our congressional leaders were basking in the media limelight by scolding auto industry executives for using private jets especially at a time when billion-dollar bailouts were being debated. But...

During 2009, those same politicians are now pushing to spend $550 million of taxpayer money to acquire private jets for their personal travel usage. More lavish travel and lavish entertainment while those actually paying for it are struggling. What expensive hypocrisy!

There are many solid reasons why the public is angry at politicians and disgraceful, lavish, excessive spending is a primary reason for the justified angry and outrage. The arrogant politicians are squandering the nation's resources at a time when our economy is struggling and millions are dealing with financial pain.

Millions are dealing with financial hardship, bankruptcy, foreclosures and tighter budgets yet our leaders are living lavishly and spending trillions without care or consequence. The payment of these trillions will have to be painfully inflicted on taxpayers and consumers and their children and grandchildren.

Congress and the President should use these tax-payer funded jets to go to Zimbabwe to see what could happen when exorbitant spending and inflating go too far. Remember this when they say to you "Aw gee...we have deficits...we need you to pay more taxes".

It is a important to communicate our dissatisfaction with the politicians running Washington and many of our states and cities. Call them...write them...meet them. Our country needs it.

Paul Mladjenovic

Tuesday, August 4, 2009

"Single Payer Option " is a fallacious idea

Many people like the proposal for what is called the "single payer option". This is the foundation beneath most universal healthcare proposals. Part of the false allure of the "single payer option" is the idea of alleged efficiency. In other words, why have adminstrative costs among many private options when there would be greater efficiency with a "single payer" and therefore less administrative cost. This is WRONG. Let's get some clarity about the "single payer option".

1). People like the idea of the "single payer option" because they think that SOMEONE ELSE will pay for their healthcare; the government. This is tied to the dangerous myth of something called "government money". There is no such thing. Any money that the government has really comes from 3 sources; taxes, borrowing and currency creation. Taxes is money taken by FORCE from the private sector (taxpayers). Borrowing is receiving money today from others (such as the Federal Reserve or countries such as China) and must be paid for in the future (with future taxes). Currency creation means that the Federal Reserve (our central bank) creates money out of thin air and provides it to the federal government or other institutions (this results in inflation which is really a hidden tax paid by consumers).

2) The "single payer option" claim to efficiency is, at best, misleading. What "efficiency" it may or may not generate in adminstrative matters is entirely irrelevant since the single payer option's cost would sky-rocket because it tremenedously warps supply and demand for health goods & services. You see, those that favor the single payer option do so from a "static" point of view and not a "dynamic" point of view. The dynamic point of view takes into effect the changes in behavior that will undoubtedly result as a consequence of the single payer option. If the public believes that they are forced to pay for healthcare and that the government will ultimately provide for the service, then this will stimulate demand and increase consumption of healthcare services. However, it won't stimulate supply. Therefore, even if the alleged administrative savings do mireaculously show up, it wouldn't matter since over-stimulated demand for healthcare would drive costs much higher than expected.

In the private sector, costs are better contained than in any government scheme for obvious reasons. Any company that lets costs get out of control would face eventual bankruptcy. Government costs, however, are FORCED upon others such as current taxpayers, future taxpayers or consumers. In the event that government does contain costs, it can only do so by FORCED rationing. In the long run, government-run healthcare ultimately fails.

Thursday, July 23, 2009

Understanding Healthcare costs

Whenever we think that something "costs too much", it is helpful to understand how costs become costs. What goes into the price of (in this case) healthcare? After all, the great policy debate of healthcare is about "lowering costs"? Congress's Speaker of the House, Nancy Pelosi said that healthcare reform can be summed up in two words..."Lowering cost".

In healthcare, the costs have skyrocketed in recent years due to factors above and beyond the simple calculation of a medicine or health service. two things come to mind quickly:

1) Bureaucracy -There are medical practices in America that have on staff more people that do administrative work than there are people to provide healthcare service. Our healthcare system is overloaded with paperwork. Insurance forms, medicaid, medicare, federal reports, state & local reports and so on. This massive cost ends up as part of "healthcare costs".

2) Legal costs- We live in a litiginous society, unfortunately. granted, some of it is necessary. But in recent years costs tied to legality and lawsuits have risen dramatically. It is now very common for many in the medical profession to pay malpractice insurance that is in six digits (or even seven). In other words, part of being a medical professional is to pay over $100,000 per year just to keep yourself from being sued out of your job!

Current healthcare proposals will do little (nothing?) to address these two very expensive components of "healthcare costs". But...if you think healthcare costs are high now, what do you think it will be after so-called "reform"? Here...do the "math"...

Before "Reform": Healthcare costs
After "Reform": Healthcare costs + 31 new federal bureaucracies

Ask your representatives in Congress to come up with the "new costs".
Hint: the total amount will be north of $1 trillion on top of current costs.

I can sum up my feelings about healthcare reform with one word: YIKES!

Wednesday, July 15, 2009

Paul Mladjenovic

Hello everyone!

There is so much happening that I wanted to get this blog going so that I can share what I can about the economy and financial markets. new postings will come soon...

Stay well,
Paul Mladjenovic