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:

THE GOVERNMENT CAN NOT CREATE A SINGLE JOB AND HAS NEVER CREATED A SINGLE JOB. WHY? BECAUSE THE ONLY WAY GOVERNMENT CAN "CREATE A JOB" IN A GOVERNMENT AGENCY IS BY FIRST DESTROYING A JOB IN THE PRIVATE SECTOR.

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.

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!"?

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

By Paul Mladjenovic
www.ProsperityNetwork.net
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”:


THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
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:

CONSIDER PUTTING YOUR MONEY IN THOSE THINGS THAT WILL BENEFIT FROM THE MONETARY SITUATION AND FROM THE DEMAND AND SUPPLY EQUATION.

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…

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

By Paul Mladjenovic
www.ProsperityNetwork.net
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…

THE PRICES OF GOODS, SERVICES AND ASSETS
ARE MOST AFFECTED BY TWO FUNDAMENTAL FACTORS:
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).

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:

ALL INDIVIDUALS SHOULD SAVE A PORTION OF THEIR INCOME.

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.

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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:

DO NOT SPEND MORE THAN WHAT YOU TAKE IN.

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.

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
www.ProsperityNetwork.net