Wednesday, January 27, 2010

Who is right…Paul Krugman or Ringo Starr?

Copyright 2010. Paul Mladjenovic. All rights reserved.
January 27, 2010

Ponder for a moment the following quotes:

“Everything government touches turns to crap”
Ringo Starr

“We need more government”
attributed to Paul Krugman (see below)

The first quote by Ringo Starr is an actual quote and you can easily find it on many quote sites on the internet.
The second quote is attributed by…me! You probably won’t find that quote (and maybe you will). You might even find that Paul Krugman may deny saying it but probably embracing the point. I attribute it to him as an “unofficial summary” of his writings over the years.

Why? Because if you are an avid Krugman reader (which I am) you will no doubt come to the same conclusion. In ways both overt and subtle, one of the biggest messages (maybe the biggest) from him is that he wants bigger government. He wants more spending and more debt because he sincerely believes that more government is better for the world. When someone points out how a government program is failing (such as medicare) he basic retort is that we can solve it with…more government. Yikes!

Look…I am sure that he is a nice guy and that he means well. I am sure that he knows something about economics although I am still scratching my head over why he got the Nobel Prize (I can name a dozen that I think deserve it). But, with all due respect, I wish that he knew more about economics! At the very least, I wish he had Ringo Starr’s insights. Why?

Think about the following points that you will find in Krugman’s latest writings…

“…a spending freeze is wrong…”
“…the federal government needs to spend more…”

Right now the government is spending trillions that our society can not possibly afford. Whatever government spends, we must pay for. Either we pay for it now (current taxes) or we pay for it later (future taxes). If we don’t have the money, then the government goes into greater debt. We will either pay for this massive debt in obvious ways (such as taxes) or in less obvious ways (such as inflation). No matter how you slice it, we will pay and it will be a very, very painful price. This is the lesson of history.

He has said in some columns that government spending helps to kick-start economic growth and job creation. This is both economically wrong and logically wrong. The year 2009 should be a clear lesson in this. During 2009, government spending went through the roof…yet…the unemployment rate went up drastically. He should understand that the ONLY way that government can “create a job” (such as a government job) is if it first takes resources that DESTROY private sector job(s).

When private sector jobs are eliminated, you shrink the pool of people that PAY taxes. Then…when you hire people for government jobs, you have to pay for them with taxes! In other words, you expand the burden on the private economy which in turn means less tax revenue which means sky-rocketing deficits (and more debt).

We must understand that our economy is like a “pack mule” and the government is “the cargo”. If the mule is on wobbly legs, you won’t help it move faster by adding more cargo. Why is this so hard to understand?

I can only hope that a rock star can help an economist figure this out.

Paul Mladjenovic, CFP is the author of Stock Investing for Dummies and Precious Metals Investing for Dummies. He is a national seminar leader and his current downloadable seminars are at and

Friday, January 22, 2010

3 Things Everyone Needs to Do with Money in 2010

By Paul Mladjenovic. January 22, 2010.
Copyright 2010. Paul Mladjenovic. All rights reserved.

Yes…2008-09 was a bruising time period. Many securities plunged and many accounts were massacred. Although we got through it, there is an uneasy feeling that more trouble is yet to come.

I expect that more catastrophes are heading our way since the fundamentals for our economy are still very weak and Washington is still working on policies that will do more harm than good. In the past twelve months, our expanding federal government has added trillions more in debt to our already massive debt burden.


I am working on my next set of forecasts and seminars but before they are out, I want everyone (and I mean EVERYONE) to consider 3 simple things to gain greater financial peace of mind:

• Diversify away from paper assets. As I have written before, paper assets have “counter-party risk”. Any “paper” investment that you have (such as stocks, bonds, ETFs, mutual funds, cash accounts, etc.) have counter-party risk. In other words, that investment’s value is tied to someone else’s promise or performance. A stock can go worthless if that company ceases to perform well (or just ceases to perform!). Bonds can become worthless if the borrower can’t or won’t pay. What should you consider? Add some gold or silver physical bullion to your asset portfolio. Gold and silver bullion are among the very few investments that do not have counter-party risk. They have their own, unique intrinsic value and that has been true for thousands of years. It will continue to be true for years to come.
• Accumulate essentials. As odd as this may sound for some of you, consider starting a pantry or otherwise consider stocking up on essentials such as non-perishable foods, extra water, etc. No…I am not asking you to become a survivalist or a hermit. I consider this is to be just another form of diversification. The world is too precarious right now and is quite vulnerable to disruptions. Severe inflation is not far off. Potential problems can come from a variety of expected and unexpected venues. What do you think will have greater value a few years from now…a dollar or a can of soup?
• Re-focus your portfolio with emphasis on “human need”. You should consider stocks and ETFs of companies and industries that provide goods and services that are actually NEEDED. Think about what people will continue to buy no matter how good or bad the economy is. I think that part of your long-term picture should include commodities.

Trillion-dollar tinkering will continue in Washington. Ongoing massive blunders and financial difficulties will need to be faced by all of us. Take steps now. You will be glad you did.

If you want to be alerted to the next financial educational programs and essays, feel free to follow me at

We have to be mindful of the fact that much of today’s difficulties (and tomorrow’s) is not due to some “Democrat” or “Republican” or strictly to something that is “left-wing” or “right-wing”. It is primarily due to Statism. “Statism” is the idea and practice that government should kept growing and becoming more and more involved in our private lives, businesses and finances. Unfortunately, most politicians across the political landscapes tend to be statists (at varying degrees). For the public, this is a fatal attraction since the unintended consequence is that it breeds greater dependence for more and more of our citizenry.

The problem with dependence means setting yourself up for vulnerability. Don’t let it happen! Today, there are millions of adults in our country that are dependent on others (such as government). What happens when government fails? Would you want to depend on a government bureaucracy such as the state of California or on a corporation such as General Motors (which is also dependent on government)? What other government agencies and corporations are at risk? What will happen when the federal government itself starts having financial problems? How about Social Security?

The more you strive for independence and self-sufficiency, the safer you will be.


Paul Mladjenovic, CFP is the author of Stock Investing for Dummies and the audio “HOW TO CASH IN ON THE COMMODITIES SUPER BOOM”.