A Masterclass In ‘How To Shoot Yourself In The Foot’

A Masterclass In ‘How To Shoot Yourself In The Foot’

Notes From the Field By Simon Black  October 7, 2022

In the mid 1400s, the head of the Byzantine Empire was a career politician with decades of experience who most people thought would be a capable leader.  Instead, through a series of hilariously terrible decisions, he managed to take his already weak empire off the cliff, and into the dustbin of history, in just a few short years.

And one of the ways he did that was by deliberately giving up the most strategic resource his empire possessed.

We’re seeing a similar story play out today-- the people with decades and decades of experience are doing all the wrong things to vanquish one of the most strategic resources in our modern world: energy.

Think about it-- the people in charge have demonized an entire industry. They punish oil companies with creative taxes and insane regulations. They refuse to follow the law and lease federal lands to oil and gas companies. They drag their feet in the permitting process.

They constantly antagonize energy companies and blame high fuel prices on the industry’s “greed”.

In short they do everything they can to destroy a critical resource that the nation depends on for growth and prosperity.

This is our topic for today’s podcast. We start off walking through the comical incompetence of Emperor Constantine XI from the Byzantine Empire… and then go through some key issues to know about in the oil and gas sector.

In short, supply is tight… and probably not getting better. Demand is increasing. It’s a really important trend to understand.

But we leave with some good news. This is fixable, both long-term and short-term. But the short-term fix is going to rely on a few surprising characters from our past that may become some of the most exciting economies in the world.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/podcast/a-masterclass-in-how-to-shoot-yourself-in-the-foot-37789/

15.7 Trillion New Reasons To Be Concerned About The National Debt

15.7 Trillion New Reasons To Be Concerned About The National Debt 

Notes From the Field By Simon Black  October 4, 2022

Last Friday, September 30th 2022 was the close of the Fiscal Year for the US federal government.  If you’re not familiar with the term, the ‘Fiscal Year’ refers to the government’s official accounting period. It starts on October 1st and ends the following September 30th. And everything from the federal budget to the Supreme Court’s case schedule is based around the Fiscal Year.

So are calculations for the national debt.  And based on the figures just released, the US national debt has now reached nearly $31 trillion as of the close of the Fiscal Year last Friday.

(If you want to see the number down to the penny, it’s $30,928,911,613,306.73)

At the start of the Fiscal Year back on October 1, 2021, the national debt was $28.4 trillion. So over the course of the past twelve months, the debt increased by a whopping $2.5 trillion.

That’s the second highest annual increase in the US national debt EVER, after the $4.2 trillion increase in the 2019-2020 Fiscal Year during the pandemic.

Now, a $2.5 trillion increase in the national debt is terrible, and alarm bells should be sounding from coast to coast. But there’s actually something more worrisome going on with the debt.

Remember that whenever governments borrow money, they do so by issuing some form of government bond. A bond, just like a loan, is a type of IOU. One of the key differences, however, is that a bond is a financial security that, just like stocks, can be easily bought and sold by investors around the world.

US government bonds are referred to as Treasury securities; so when we say that the national debt is $31 trillion, this means that the US government has $31 trillion in various Treasury securities outstanding.

Treasury securities are issued with specific maturities; similar to how a bank could issue a mortgage with a 30-year, 20-year, or 15-year term, the government issues bonds with varying maturities, ranging from 4 weeks all the way up to 30 years.

And once the bond matures, whether that be after 4 weeks or 30 years, it needs to be repaid.

This is the worrisome part. Because out of all the bonds that the US government has issued, the weighted average maturity is about FIVE years.

This is a REALLY short average maturity for government bonds.

To put this in context, the average maturity for Japanese government bonds is more than 9 years. For German government bonds it’s more than 13 years. In the UK it’s about 15 years.

But, again, in the US, it’s just 5 years. And this means that, every year, approximately 20% (one-fifth) of US government bonds will mature and need to be repaid.

It’s actually worse than that; due to various complexities in Treasury issuance, the actual amount of bonds that need to be repaid is much higher.

Based on data that was just released yesterday, in fact, the US federal government repaid $15.7 trillion worth of bonds in the most recent Fiscal Year.

You might be wondering– how on earth did they come up with that much money? Easy. They just issued more debt.

In a way it’s like the government is paying off its credit card by transferring the balance to another credit card. So whenever a bunch of bonds mature and need to be repaid, the Treasury Department simply issues more bonds (i.e. debt).

By doing this, the “net” debt hasn’t changed; they pay off X amount of debt by issuing X amount of new debt.

This worked just fine as long as interest rates remained at record lows. But now rates are rising rapidly.

Here’s a startling example: on October 27, 2020, the Treasury department issued around $50 billion worth of 2-year Treasury Notes at a yield of just 0.12%.

Well, now it’s two years later, and those 2-year Treasury Notes are about to mature. So the government is going to have to issue a new $50 billion batch of bonds to pay off the maturing debt.

The problem is that interest rates have risen a LOT since 2020. The 2-year Treasury yield is now 4.2%, and rising. In other words, the new $50 billion issuance will cost the government an additional $2 billion per year in interest ($50 billion x 4%).

Now imagine this problem for the ENTIRE $31 trillion national debt.

Rates are already, on average, around 3-4% higher than they were a few years ago. And if the average interest rate on the national debt increases by just 3%, that means the government will owe an EXTRA $1 trillion per year, just in INTEREST.

In case you’re wondering, total interest in the Fiscal Year that just ended last Friday is an unbelievable $706 BILLION. If rates keep rising, annual interest payments could increase to nearly $2 trillion.

This is an inconceivable figure that would bankrupt the federal government.

Now, there are some people who dismiss this concern because a portion of the interest is paid to other departments of government. They claim the debt, and interest expense, are no big deal because “we owe it to ourselves.”

This is partially true; the Defense Department buys some Treasury securities to earn a bit of interest on their excess cash. The Social Security and Medicare Trust Funds own nearly $3 trillion of US government bonds and receive interest payments.

But this shouldn’t be relevant. Interest is interest. Money owed is money owed. Regardless of to whom it is paid.

It’s ludicrous to pretend like we shouldn’t count certain interest simply because it’s being paid to Social Security beneficiaries.

Bottom line, this is an EXTREMELY precarious situation. The US national debt is so high… and the average debt maturity is so short… that significant rate increases risk pushing the federal government towards default.

You’d think that the Treasury Department would be doing everything it can to extend their average bond maturity, and increase it from five years to, say, ten years. That would at least make a dent in the problem.

Or that Congress and the White House would get their fiscal house in order and start balancing the budget.

But no. Not these people. In fact the Treasury Secretary has specifically stated that she does not want to extend maturities. And the White House is too busy forgiving student debt to even think about balancing the budget.

This is a real crisis brewing. And the people in charge are deliberately ignoring it.

To your freedom, Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/trends/15-7-trillion-new-reasons-to-be-concerned-about-the-national-debt-37716/

Becoming Financially Secure: What to Do First

Becoming Financially Secure: What to Do First   By Philip Brewer

Standard financial advice is full of things to do first — emergency fund, 401(k), pay off debts, start investing, stockpile emergency supplies. What really comes first? (See also: Be In Charge of Your Finances)

Because everybody's circumstances are different, there's no one true answer that applies to everyone. Instead, the right way to approach this problem is with a mental model — a way to think about these issues that can guide you to coming up with the right answer for your particular circumstances. Here's my stab at one.

First, Stop the Penalties

Probably the most expensive mistake you can make with your finances is to find yourself paying penalties for screw ups. I'm talking about things like:

    Late fees

    Overdraft fees

    Disconnect/reconnect fees for utilities

    Penalty interest rates

If you have any accounts that are racking up penalties, that's the first thing to take care of. All your spare money should go there. Engage in some emergency belt tightening, if necessary, to free up some cash. In this one case, it might even be worth going further into debt to cure this sort of problem. (It depends on the interest rates you have to pay. For example, interest rates on a payday loans are often so high that you're better off just paying the penalty rate on your credit card.)

Second, Make Things Safe

You can prevent most of those most horrible problems with a very small emergency fund, one just big enough to smooth over glitches.

My suggestion for a minimal emergency fund is roughly the size of your biggest single bill — maybe your rent payment or mortgage payment.

Of course a small emergency fund like this doesn't provide much protection if there's a real emergency — you lose your job or have a large expense not covered by insurance. Where it helps is when something goes very briefly awry.

Suppose your payment to your insurance company goes astray and you need to write a new check today or else your insurance will be canceled. The problem will be sorted out soon enough — either the check will be permanently missing and you can just stop payment, or else it will turn up and the insurance company will refund you the overpayment. But right now you need a little cash to keep your insurance from being canceled.

A small pool of available cash like that is almost immediately self-funding, covered by the late/overdraft fees avoided.

A very similar move is to stockpile some staples in your pantry. When I was younger and my finances were out of control, I'd sometimes find myself buying an expensive meal at a nice restaurant because I was out of money. (In those days, grocery stores and cheap restaurants didn't take credit cards, but expensive restaurants did.) Have enough food on hand that you can always prepare a meal.

To continue reading, please go to the original article here:

https://www.wisebread.com/becoming-financially-secure-what-to-do-first

“The Most Impressive Failure Of His Time”

“The Most Impressive Failure Of His Time”

Notes From the Field By Simon Black  September 30, 2022

Lately we’ve been led astray over and over again by supposed ‘experts’ with decades of experience who can’t seem to stop making colossal mistakes.  But I’m not just talking about individuals. I’m talking about institutions too.

And one institution in particular that’s been an abject failure lately has been the central bank. That includes the Federal Reserve in the United States, the Bank of England in the UK, and more.

The Federal Reserve, for example, despite its leaders’ decades of experience, completely failed to predict that their policies over the past few years would have any consequences. It’s extraordinary.

These people honestly thought that they could print trillions of dollars, keep interest rates at 0%, and that there would never be any consequences until the end of time.

And then, when inflation began to take hold last year, they failed to recognize it. They chastised people who pointed it out.

Later, when they finally did acknowledge inflation, they insisted it was transitory. And then when they ‘retired’ the term transitory, they promised to do something about the growing inflation problem… eventually.

Finally, in March 2022, they made a very ceremonial 0.25% interest rate increase. File that away under “too little, too late”.

But now their tune has changed. Now their policies smack of panic and desperation, and they sound like they’re running around with their hair on fire with no clue what to do next.

It hardly inspires confidence.

Earlier this week we saw another example.

The Bank of England made a stunning announcement that they would step in to prop up their rapidly-declining bond market. Investors around the world cheered the news, and global financial markets surged.

The euphoria lasted about 24 hours.

The next day, markets tanked again as investors realized, “Hang on… I don’t believe these people.”

Central banks have enjoyed unparalleled respect and gravitas for the past 30 years; going back to Alan Greenspan in the 1990s, central bankers have been viewed as infallible superheroes who always know what to do.

Now they just look like a bunch of amateurs.

In today’s podcast, I walk through my analysis about what might happen next. Specifically, I argue why I think there’s NO WAY they’ll follow through on their interest rate increases. Simply put, continuing to do so will bankrupt their governments.

Ultimately this means that inflation, at least some inflation, is here to stay. And I also discuss a couple of key asset classes, plus one surprising country, that can do well in this mess.

Click here to listen.

To your freedom,  Simon Black,  Founder, SovereignMan.com

https://www.sovereignman.com/podcast/the-most-impressive-failure-of-his-time-37685/

The Best Way Americans Can Legally Reduce Taxes... Without Moving

The Best Way Americans Can Legally Reduce Taxes... Without Moving

Notes From the Field By Simon Black  September 26, 2022

Legally reducing your tax bill is the best risk-free return on investment you can make.  Investing in a completely legal tax strategy means keeping 10, 20, even 30% more of your own income.  And in many cases the solutions aren’t especially exotic. For example, if you live in California, you can slash you taxes simply by moving next door to Nevada. Doing so eliminates California state income tax, which kicks in at 9.3% for income over $61,215.

Moving even further, from Nevada to Puerto Rico, means eliminating not only state income tax, but also US federal income tax.

Puerto Rico’s tax incentives allow you to pay absolutely zero US federal tax. Instead you’ll pay a low 4% tax rate on qualifying business income, and 0% capital gains tax on qualifying investment income.

Or you could move overseas and take advantage of the Foreign Earned Income Exclusion, which, in 2022, allows Americans living abroad to earn up to $224,000 (if you’re married) without being taxed by the federal government.

But for many people, moving is simply not possible— due to family, work, or other factors.

Luckily, there is another powerful tax reduction strategy that does not require a change of location: tax advantaged retirement accounts.

First, you can reduce your taxable income significantly by making pre-tax contributions to a Traditional 401(k) retirement account.

In 2022, you can reduce your taxable income up to $20,500 by contributing that amount to your 401(k). And if you’re 50 or older, you can contribute $6,500 more as a “catch up” contribution – for a total of $27,000 per year.

This means that your taxable income decreases by $27,000, potentially saving you thousands of dollars in taxes.

It’s worth noting that setting up a 401(k) is pretty inexpensive. So this strategy yields an extremely high return on investment, with the added benefit that you’re saving more for retirement.

People who are self-employed, or earn income from a side business, can increase that tax-free contribution even more by using a Solo 401(k).

This option applies to business owners without any employees, anyone who is self-employed, and even those who just earn a bit of income on the side— consulting, selling on eBay, driving for a rideshare service, or renting rooms on Airbnb for example.

In this case, your total tax-free contribution limit for 2022 rises to $61,000 (or $67,500 for those 50 or older).

And there are other benefits to using a self-directed Solo 401(k).

Most typical, employer-sponsored retirement accounts offer you a very limited range of investment options.

But with a self-directed Solo 401(k), you are able to invest in a much wider range of assets, including real estate, foreign investments, private equity, and more.

Eventually, you still have to pay taxes on the money you put into retirement accounts. Generally, this happens when you take money out of the 401(k) once you’re retired.

But since most people’s smaller retirement income puts them in a lower tax bracket, the overall tax burden is low.

I cannot overstate how beneficial it is to take steps to reduce your taxes. And here’s a simple example.

Let’s assume you have $50,000 of income each year to invest. If you did not set up a tax-advantaged retirement account, and simply invest that money through your personal brokerage account, you would owe, say, 20% tax on it first.

So realistically you’d be left with $40,000 per year to invest.

Assuming you average 12% per year, after 25 years, that original $40,000 would be worth about $680,000. That’s a pretty great return.

But now let’s imagine, instead, you put the money in your Solo 401(k). In that case, the money is tax-deferred, so there is no up-front tax. You can invest the ENTIRE $50,000.

Assuming the same return— 12% per year, after 25 years, the original $50,000 invested would be worth $850,000.

In short, you saved $10,000 in up-front taxes because you invested through a Solo 401(k). And that $10,000 tax deferral resulted in an extra $170,000 investment return.

So you can see how powerful this strategy can be.

Remember, this isn’t some exotic tax loophole that’s only available to the rich and powerful. This is a completely legitimate retirement structure that has been enshrined into law for more than 50 years.

The government wants you to save for retirement. Hell, the government needs you to save for retirement. They know Social Security is running out of money, so they’ve made it as lucrative and compelling as possible for you to set aside your own money for retirement.

There are so many options available, and these types of structures are definitely worth considering and learning more about.

To your freedom,  Simon Black,  Founder, SovereignMan.com

https://www.sovereignman.com/international-diversification-strategies/the-best-way-americans-can-legally-reduce-taxes-without-moving-37659/

Align Yourself With The Trajectory Of The World

Align Yourself With The Trajectory Of The World

Notes From the Field By Simon Black   September 23, 2022

John Adams famous wrote to his wife Abigail in the year 1780: “I must study politics and war, that my sons may have the liberty to study mathematics and philosophy. . . in order to give their children a right to study painting, poetry, and music. . .”

So that their children can major in gender studies and waste their lives on Tik Tok.

OK so I added that last part myself. But I believe the quote most accurately sums up the natural decline of empire.

When enough time passes, a dominant superpower begins to lose the cultural traits that made it great to begin with. Instead of being energetic, ambitious, and hungry, the population becomes complacent.

Meanwhile, hard-working rivals become wealthier by the day… rising, ascending, and eventually eclipsing the declining superpower.

History has been witness to this natural cycle over and over again, from the ancient Greek conflicts between Athens and Sparta, to the decline of France and rise of Great Britain in the 1700s.

The United States is the modern superpower that is now in obvious decline; we write about this all the time at Sovereign Man, so this should hardly be a controversial statement. As former US Treasury Secretary Larry Summers once said, “There is surely something odd about the world’s greatest power being the world’s greatest debtor.”

And he’s right. The economic and financial data are clear: the US has enormous debts, huge deficits, awful inflation, and insolvent pension funds (like Social Security). The social divisions are palpable. Trust levels in institutions, government, and corporations are at historic lows.

It’s true that the US has been divided before. And the US has also seen its share of financial crises.

But simply put, America has never been battered simultaneously by so many debilitating trends. This is truly new territory for the world’s dominant power.

Now, it’s important to not get emotional about US decline. We’re talking about facts and doing our best to make a rational analysis.

And one of my conclusions is that we may be experiencing the end of an era.

For the past several decades, the US was the undisputed global superpower. And there was a great deal of peace and prosperity in the world.

After all, so many countries-- China, India, Russia, etc. were getting rich selling their products and resources to the United States. Who would possibly want to screw up that balance?

We’ve seen this same cycle over and over again throughout history: peace and prosperity go hand and hand.

But things are different now. Other countries are stronger than they used to be. The US is much weaker. The power dynamics have been disrupted… and the cycle of peace and prosperity is being displaced by chaos and conflict.

This is our topic for today’s podcast.

We start in ancient Rome and discuss how the unparalleled dominance of the Roman Empire in the early 1st Century brought an unprecedented period of stability, peace, and prosperity to the western world.

Frankly it’s quite similar to what we enjoyed for the past 30 years.

But the Pax Romana, as this period is known, did not last. Neither is the Pax Americana.

We see chaos and conflict all over the world now… much of it due to the decline of the US, much of it due to bonehead incompetence from the supposed ‘experts’ who run the show.

And this new era of chaos and conflict has some pretty serious implications.

Don’t worry-- it’s not the end of the world. In fact, there are some really interesting opportunities for anyone with the independence of mind to look at these facts and trends rationally.

And we discuss some of these in today’s podcast, including things like real assets, and investing in neutrality.

I explain, for example, what today would be the equivalent of having a Swiss passport in 1935. Or which specific asset classes are extremely relevant in a world where resource nationalism is a real possibility. And how cryptocurrency fits in to a cycle of chaos and conflict.

These big picture trends are all very clear-- it’s the obvious trajectory of the world right now. And it makes a lot of sense to align yourself with that trajectory of the world.

You can listen in to the podcast here.

To your freedom,  Simon Black, Founder, SovereignMan.com

https://www.sovereignman.com/podcast/align-yourself-with-the-trajectory-of-the-world-37621/

Incentives: The Most Powerful Force In The World

Incentives: The Most Powerful Force In The World

SEP 20, 2022  by Morgan Housel Collab Fund

By age 35, Akinola Bolaji had already spent two decades scamming people online, posing as an American fisherman to con vulnerable widows into sending him money.  The New York Times asked the Nigerian how he felt about causing so much harm to innocent people. He replied:

“Definitely there is always conscience. But poverty will not make you feel the pain.”

Scamming people is easier to justify in your head when you’re starving.  It’s an extreme example of something everyone – you, me, everyone – is susceptible to and more influenced by than we want to admit: Incentives are the most powerful force in the world and can get people to justify or defend almost anything.

When you understand how powerful incentives can be, you stop being surprised when the world lurches from one absurdity to the next. If I asked, “How many people in the world are truly crazy?” I might say, I don’t know, 3%-5%. But if I asked, “How many people in the world would be willing to do something crazy if their incentives were right?” I’d say, oh, easily 50% or more.

No matter how much information and context you have, nothing is more persuasive than what you desperately want or need to be true. And as Daniel Kahneman once wrote, “It is easier to recognize other people’s mistakes than our own.” What makes incentives powerful is now just how they influence other people’s decisions, but how blind we can be to how they impact our own.

A big thing here is recognizing that people are not calculators; they are storytellers. There’s too much information and too many blind spots for people to calculate exactly how the world works. Stories are the only realistic solution, simplifying complex problems into a few simple sentences.

And the best story always wins – not the best idea or the right idea, but just whatever sounds the best and gets people nodding their head the most. Ben Franklin once wrote, “If you are to persuade, appeal to interest and not to reason.” Incentives fuel stories that justify people’s actions and beliefs, offering comfort even when they’re doing things they know are wrong and believe things they know aren’t true.

True story about a guy I knew well: A pizza delivery man who became a subprime mortgage banker in 2005. Virtually overnight he could earn more per day than the earned per month delivering pizza. It completely changed his life.

Put yourself in his shoes. His job was to make loans. Feeding his family relied on making loans. And if he didn’t make those loans someone else would, so protesting or quitting felt pointless.

Everyone knew the subprime mortgage game was a joke in the mid-2000s. Everyone knew it would end one day. But the bar for someone like my friend to say, “This is unsustainable so I’m going to quit and deliver pizza again” is unbelievably high. It would be high for most of us. I didn’t blame him then, and I don’t blame him now.

A lot of people screwed up during the financial crisis. But too many of us underestimate how we ourselves would have acted if someone dangled enormous rewards in our face.

This goes up the food chain, from the broker to the CEO, the investors, the real estate appraiser, the realtor, the house flipper, the politician, the central banker – incentives lean heavily towards not rocking the boat. So everyone keeps paddling long after the market becomes unsustainable.

Sometimes the behaviors and outcomes are more extreme.

To continue reading, please go to the original article here:

https://collabfund.com/blog/incentives/

Good Enough

Good Enough

SEP 7, 2022  by Morgan Housel  Collab Fund

Spare a thought for the poor guppy fish, who lives a miserable existence but teaches us something important about forecasting.  Small, brightly colored, and terrible at defense, the guppy faces an unusually high rate of predator attacks. Birds eat guppies. Small fish eat guppies. Big fish eat guppies. Crabs eat guppies. It’s everyone’s favorite lunch.

How does a species under so much threat avoid extinction?

In short, guppies get busy as soon as they’re born. They can reproduce at seven weeks old, and deliver new offspring every 30 days. By the time a six-month-old guppy is eaten by a bird it might be a great-great-grandmother. The family lives on.

But this evolutionary trick has a nasty flip side.

Knowing how much danger they’re in, guppies expend nearly all their energy on reproducing from the moment they’re born. They grow as fast as possible, then devote a huge portion of their resources to nourishing their young.

That leaves little energy left to care for themselves. Their bodies are thrown together slipshod, like cheap plastic toys, and few resources are available for cell repair and maintenance. By the age of a year or two old it’s a crusty senior citizen, crippled by disease and decline, soon to go belly up. That’s how it should be: No use investing in the future when you’re likely to be eaten anyway.

Now compare the guppy with the Greenland shark, whose life is nearly a mirror image.

The Greenland shark has no natural predator. It rules its habitat like a dictator.

With few threats, it takes its sweet time becoming an adult. It’s one of the slowest-growing creatures we’ve discovered, reaching sexual maturity at – and this isn’t a typo – 150 years old.

In the meantime it spends more than a century devoting its energy to building itself a perfect body. Slow and methodical, with all of its resources going to cell repair and maintenance, it becomes virtually immune to cancer and infectious disease. As best we can tell a Greenland shark can live for 500 years, maybe more.

The point is that nature is very good at assessing future risk and uncertainty and allocating resources accordingly.

It takes a realistic look at future threats and says, “There are so many risks lurking. Don’t even bother trying to plan for the future.” For others it says, “Your future is clear and foreseeable – predict away with confidence.”

Fish are masters at this balance.

Birds are masters at this balance.

Insects are masters at this balance.

But people trying to forecast the economy? Different story.

Everyone knows the economy is hard to predict, and the history of economic predictions is abysmal.

But leaving it at that is too simplistic.

To continue reading, please go to the original article here:

https://collabfund.com/blog/good-enough/

Nine Money Rules To Live By

Nine Money Rules To Live By

Liz Weston, MSN Money

Americans young and old are flunking their finances, but money mastery isn't really that hard. Here are 9 simple keys you need to know. Most surveys that measure financial literacy focus on teenagers, and the results are always grim. In research by the nonprofit Jump$tart Coalition, which promotes personal finance education, the average high school student correctly answered just 48.3% of the questions covering money basics in 2008. That was down from 57.3% a decade earlier, but even that score was hardly distinguishing -- anything less than 60% counts as an F.

A 2005 poll by Harris Interactive for the National Council on Economic Education showed that adults aren't that much savvier. While teens on average scored a 53 (another F) on a quiz testing knowledge of basic economic and personal-finance concepts, the grownups' average score was just 70 (a C).

In addition:

More than one-quarter of adults failed the quiz.

Women were far more likely to fail than men; 42% scored an F, compared with 15% of men.

Men were much more likely than women to get an A or B on the test (51% compared with 17%).

If it makes you female readers feel any better, there are also lots of studies out there showing that we're better investors than men -- once we get around to investing.

But the fact remains that there's a heck of a lot of financial ignorance going around, and financial ignorance is costly. Women may have even more to lose than men, since we tend to earn less, are more likely to have interrupted careers and live longer, which means we have more time to suffer from our mistakes.

My email box and Facebook page bear testimony to the daily cost of financial illiteracy: men and women who are overwhelmed by debt or have no savings, or don't invest for retirement, or fall for investment scams, or think we can drive gas prices down by not buying fuel for a day.

Understanding economics and personal finance doesn't mean you won't make mistakes or face financial disasters. But you can lessen the odds and repair the damage faster if you know the rules of the game.

Here are the economic and financial concepts I wish everybody knew:

1. The difference between needs and wants

Our actual needs are pretty limited: food, shelter, clothing, companionship. Just about everything else is a "want," and our wants are essentially endless. Because our resources are limited (see "scarcity," below), we have to make choices about which wants to fulfill.

Also, the way we fulfill our needs involves a lot of choice. Shelter, for example, can be a bed at a mission for the homeless or a $125 million mansion. Our food choices offer a similar range, from beans and tap water consumed at home to steak and Dom Perignon at an exclusive restaurant.

I've discovered many people believe they have to spend money in certain ways or in certain amounts, when in reality their spending is a choice -- or is at least based on choices they made earlier. If you're facing a monster mortgage payment, for example, it's because you chose to buy that home and selected that particular mortgage.

Taking responsibility for our choices can be scary, but it should also be empowering. After all, if you have choices, you're not just a victim of circumstance.

2. Scarcity makes your choices for you

It's lovely to believe in a world of endless abundance, but the reality is that at any given point in time, our resources have limits. Whether it's oil in the ground, our time here on Earth or the cash in our pockets, there's only so much available to be spent.

People who ignore this reality are the ones who run out of paycheck before they run out of month, or who extend their unsustainable spending by relying on credit cards, home equity loans and other reckless borrowing. Their refusal to make the sometimes-hard choices needed to responsibly manage money means that they will have even fewer choices in the future. The money they spend on stuff and on interest can't be invested in other goals, like retirement, so odds are pretty good they'll wind up old and broke.

To continue reading, please go to the original article here:

http://www.taxproboise.com/identity_theft/young_and_old_are_flunking_their_finances.pdf

Three Big Things: The Most Important Forces Shaping the World

Three Big Things: The Most Important Forces Shaping the World

by Morgan Housel

An irony of studying history is that we often know exactly how a story ends, but have no idea where it began. Here’s an example. What caused the financial crisis? Well, you have to understand the mortgage market.

What shaped the mortgage market? Well, you have to understand the 30-year decline in interest rates that preceded it. What caused falling interest rates? Well, you have to understand the inflation of the 1970s.

What caused that inflation? Well, you have to understand the monetary system of the 1970s and the hangover effects from the Vietnam War.

What caused the Vietnam War? Well, you have to understand the West’s fear of communism after World War II

And so on endlessly.

Every current event – big or small – has parents, grandparents, great grandparents, siblings, and cousins. Ignoring that family tree can muddy your understanding of events, giving a false impression of why things happened, how long they might last, and under what circumstances they might happen again. Viewing events in isolation, without an appreciation for their long roots, helps explain everything from why forecasting is hard to why politics is nasty.

Those roots can snake back infinitely. But the deeper you dig, the closer you get to the Big Things: the handful of events that are so powerful they influence a range of seemingly unrelated topics.

The ultimate of those great-grandmother events was World War II.

It’s hard to overstate how much the world reset from 1939 to 1945, and how deeply the changes the war left behind went on to define virtually everything that’s happened since.

Penicillin owes its existence to the war. So do radar, jets, nuclear energy, rockets, and helicopters. Subsidizing consumption with consumer credit and tax-deductible interest were deliberate policies meant to keep the economy afloat after war-time production ended. The highways you drove on this morning were built to evacuate cities and mobilize the military in case of a nuclear bomb attack during the Cold War, and the Cold War was a WW2 cousin. Same for the internet.

The Civil Rights movement – perhaps the most important social and political event of our time – began in earnest with racial integration during the war.

The female laborforce grew by 6.5 million during the war because women were needed in factories. Most kept working after the war ended, beginning a trend that led to a doubling of the female laborforce participation rate by 1990. It’s probably the single most important economic event of our lifetime.

Find something that’s important to you in 2019 – social, political, economic, whatever – and with a little effort you can trace the roots of its importance back to World War II. There are so few exceptions to this rule it’s astounding.

But it’s not just astounding. It’s an example of something easy to overlook: If you don’t spend a little time understanding World War II’s causes and outcomes, you’re going to have a hard time understanding why the last 60 years have played out the way they have.

You’ll struggle to understand how the biggest technologies got off the ground, and how the most important innovations are born from panic-induced necessity more than cozy visions.

Or why household debt has risen the way it has.

Or why Europeans have different views on social safety nets than Americans. John Maynard Keynes predicted countries wrecked by war would go on to have a “craving for social and personal security,” and indeed they did. Historian Tony Judt writes of post-war Europe:

Only the state could offer hope or salvation to the mass of the population. And in the aftermath of depression, occupation and civil war, the state—as an agent of welfare, security and fairness—was a vital source of community and social cohesion.

There are so many things happening today that aren’t easy to grasp without a working knowledge of the 75-year-old wartime forces that got them going in the first place. To me, the war is fascinating to study not because of what happened, but what it went on to influence.

Which raises the question: What else is like World War II?

What are the other Big Things – the great-grandparents – of important topics today that we need to study if we want to understand what’s happening in the world?

Nothing is as influential as World War II has been. But there are a few other Big Things worth paying attention to, because they’re the root influencer of so many other topics.

The three big ones that stick out are demographics, inequality, and access to information.

There are hundreds of forces shaping the world not mentioned here. But I’d argue that many, even most, are derivatives of those three.

Each of these Big Things will have a profound impact on the coming decades because they’re both transformational and ubiquitous. They impact nearly everyone, albeit in different ways. With that comes the reality that we don’t know exactly how their influence will unfold. No one in 1945 knew exactly how World War II would go on to shape the world, only that it would in extreme ways. But we can guess some of the likeliest changes.

1. A demographic shift that reconfigures modern economies.

Here’s what’s happening:

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I Finished My Residency Process: What A Great Experience

I Finished My Residency Process: What A Great Experience

Notes From the Fied By Simon Black  September 12, 2022

[Editor’s note: This letter was written by Sovereign Man team member Joe Jarvis]

Three months ago I went to Raleigh, North Carolina to complete the first step of applying for Mexican residency. The process was relatively painless. And I walked out of the Mexican Consulate in Raleigh a few hours later with my application approved.

Now, since I had to travel to Raleigh to go to the consulate there, I decided to stick around for a few days and check it out. It was during that trip when I realized just how expensive American cities have become.

Raleigh is a nice city. But it’s not a major Tier-1 US city like New York, Chicago, or San Francisco. By comparison it’s a medium-sized city. And yet I consistently paid what I would have considered New York City prices for food and drinks; $11 beers, $14 glasses of wine, $16 cocktails, and entrees regularly over $25. I looked into rents and real estate prices too, which were going bonkers and seemed incredibly expensive.

Fast forward three months, and I’ve now traveled to Mexico City to complete the final part of my residency application.

The first step is to apply at a consulate in your home country, which I did in Raleigh back in June; and, once approved, you travel to Mexico to finish the process.

Unsurprisingly, my immigration experience here was fairly painless and straight forward. Although I did opt to hire professional help (a contact our Sovereign Man: Confidential members also have access to) for only a few hundred dollars.

It was great. The lady stood in line to get me the appointment, since their online appointment tool was down at the time. She also filled out the paperwork for me— with blue ink, which is apparently very important since they have begun to turn everyone with black ink away.

And, just like my consulate experience in Raleigh a few months before, I walked out of the immigration office a few hours later with my Mexican residency complete, and my ID card in hand.

But similarly, since I had never been to Mexico City, I decided to stay for a while and check out the city.

Keep in mind that Mexico City has a population of 20+ million people. For an equal comparison, you’d be looking at places like Shanghai or New York.

But what I found in Mexico City were prices significantly lower than in Raleigh, North Carolina. Food. Drinks. Entertainment. Real estate. Transportation. Medical care. And yet the quality and service were both consistently high.

I was generally going out in the city’s wealthier neighborhoods, like Polanco, Condesa, Roma, Santa Fe, Lomas, etc. And these are arguably the most expensive locations in the country... so I wasn’t expecting ultra-cheap, rock-bottom ‘Mexico prices’.

And yet I was still pleasantly surprised at how affordable Mexico City is— how much value you get for your money. In other words, you don’t pay very much. But you get a lot for it.

A luxurious, local brand hotel suite (with a living room and small kitchen) was less than $90.

When a friend of ours got sick, we paid about $70 for an English-speaking doctor to come over and make a house call, including tests, medicine, etc.  I don’t remember paying more than a few bucks for an Uber ride anywhere in the city, even going 40 minutes to the airport.

And then there’s the food... which is absolutely divine.

Mexico City really does have some of the nicest restaurants in the world. The food is exquisite. The design and decor are among the most eclectic and creative I’ve ever seen. And the service is second to none.

Even at grocery stores, the quality of the food is really great. Mexico is a major year-round agricultural producer, so many of the fruits, vegetables, and meats they sell are fresh and locally sourced. It was all cheap, too.

The grocery store I frequented in Polanco also had multiple specialty departments with imported cheeses, meats, wines, etc.

Most of all, there didn’t seem to be any shortages of anything. Everywhere I went, shelves were full. People were working. The economy was functioning.  By comparison, we held a Total Access event (Sovereign Man’s highest tier membership) in Austin, Texas a few months ago.

Austin is a cool city. But the historic downtown hotel (which charged $400+ per night) would only clean your room every three days due to staff shortages.

Simon brought his infant daughter with him and had to routinely sneak around the hotel at night looking for a place to dispose of poopie diapers because there was no housekeeping available.

Nearby drug store shelves were half empty and missing basic staples. Food delivery fees from Uber Eats and Door Dash eclipsed the price of the food itself.

And then there was the growing homeless problem in Austin— which has also become a major issue in many cities across the US.

Mexico City, quite ironically, is a breath of fresh air. Everything worked.

And while there were occasionally some people asking for change, I never saw a ‘tent city’ of homeless people that has become so pervasive in the US.

Mexico City itself is really pretty; it has, by far, the most greenery I have ever seen in any city in the world. There are parks everywhere.

And then there’s the city’s main park, called Bosque de Chapultepec. It’s larger than New York’s Central Park and London’s Hyde Park combined.

Bosque de Chapultepec is acre upon acre of greenery, paths and ponds, with the historic Chapultepec Castle in the center. Nestled in the park is also a Zoo, monuments, fountains, and multiple museums.

Of course Mexico City is not all rainbows and buttercups. Like any city, there are bad areas too. The traffic can be terrible. And yes, you shouldn’t drink the water.

The part I dislike the most is that many people in Mexico City are still obsessed with wearing masks.

In general, no one cares if you wear a mask or not. But I did have to put one on when I went to the immigration office.

There does seem to be some lingering Covid paranoia in Mexico City that will take time to subside.

Overall, though, I was very happy with the trip and could absolutely see myself living in Mexico City at some point.

And this means that having Mexican residency is a great part of my own Plan B.

Now, in case I ever need to leave my home country, I now have a place to go where (a) I actually like, and (b) I’m legally entitled to live.

Obviously I certainly hope I never need to use my Plan B. But in case I do, it feels really good to have such a great option.

To your freedom,  Simon Black,  Founder, SovereignMan.com

https://www.sovereignman.com/international-diversification-strategies/i-finished-my-residency-process-what-a-great-experience-37019/